By Mike Colpitts
Despite the Federal Reserve’s best efforts to keep mortgage rates low, conventional home loan borrowing rates are slowly climbing. The hike 
in rates is developing because of higher yields being paid for U.S. Treasuries combined with improving economic news.
The upward trend in rates is developing as better economic news about the nation’s economy becomes more broad based. The finalization of the Greek bailout program also pushed rates slightly higher, with a four basis point jump in the fixed 30-year mortgage average last week reaching 3.92%, according to Freddie Mac.
The reality of mortgage interest rates, however, obtained by most home loan borrowers is substantially different than the average rates announced by Freddie Mac. The nation’s giant mortgage lender surveys mortgage bankers, banks and lenders to determine what the average mortgage interest rates they offer to consumers are, but does not survey the actual rates borrowers obtain. Lenders charge higher rates to consumers with less than perfect credit or for borrowers whose incomes have been less than steady.
That turns out to be the majority of consumers borrowing money. The average rate borrowers paid for a fixed 30-year mortgage finalized week before last was 4.06%, according to the Mortgage Bankers Association survey, which accounts for about 75% of all U.S. home mortgages.
The February retail sales report showed that consumers are starting to open up their wallets more, despite unemployment hovering around 8.3% across the U.S. and higher in many regions of the nation. A 1.1% gain in retail sales reported is a positive sign for the economy.
However, since consumers are paying more for gasoline the economy remains troubled as housing values slide in the majority of the nation. Prices rose 0.4% for finished goods in February as indicated by the Producer Price Index. The Consumer Price Index also rose 0.4%, the largest increase in 10 months, largely due to the jump in gas prices.
The long suffering economy, however, won’t be aided by just low mortgage rates, according to Mortgage Bankers Association economist Michael Fratantoni. A large number of homeowners are unable to take advantage of the lower rates to refinance because of a “lack of equity in their properties, poor credit and a weak job market,” Fratantoni said.
The mortgage market was in a sad state in 2011 and seems to be repeating the same cycle in 2012 with much of the same. The Federal Reserve pledges to keep the rates it sets for banks to borrow from the Fed at or near zero through 2014, which gives few consumers any incentive to jump back into the housing market any time soon.
Even small hikes in mortgage rates cut the mortgage amount home buyers can obtain and will eliminate many buyers who are on the fence.