Rates this week surged to a six-month high after President Barack Obama and congressional Republicans agreed to extend tax cuts for two years, including cuts for the wealthy. Though the deal is still being debated in Washington, financial markets interpreted the development as likely to accelerate the economic recovery but also swell the budget deficit. Though the yield on the benchmark 10-year bond has retreated some, it has still increased 21 basis points this week.
Because yields on Treasuries, especially the 10-year bond, largely influence mortgage rates, borrowing costs for mortgages have suddenly gone up. The average rate for a 30-year fix loan increased to 4.61% in the week ended Thursday from 4.46% the previous week, following a fourth week of increases, according to Freddie Mac(FMCC). The average 15-year rate rose to 3.96% from 3.81%. These rates are the highest they've been since June.
Rising mortgage rates will increase the budget deficit, but the fact that it can stimulate the economy is an even more important factor. The budget deficit is something that is important to keep an eye on but in my opinion, we currently need to focus a little more on stimulating the economy which in the long run will play a role in decreasing the budget deficit. The reason why the increase in mortgage rates can stimulate the economy is because many people who want to buy their own homes view this as a sign that mortgage rates will only increase in the future. Therefore, with this attitude, these potential homeowners will want to purchase their homes before the mortgage rates climb even higher
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