While the government is spending money to fix our problems, the resulting rising interest rates are putting pressure on the mortgage market. So much so that mortgage lending has dropped to an 8 month low as higher interest rates and rising unemployment is convince homebuyers to remain at home.

The scary thing is that this genie is out of the bottle. It will be hard to get interest rates back to their levels of even a couple of months ago with the amount of borrowing by the Federal Government. Interest rates should be rising for a while as the Treasury Department sells the trillion dollars in debt and the rest of the worlds investors worry about the health of the dollar.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 19 percent to 444.8 in the week ended June 26 from 548.2 the prior week. The group’s refinancing gauge declined 30 percent to the lowest in seven months, while the index of purchases fell 4.5 percent.

Unemployment, which touched a 26-year high in May, and rising borrowing costs discouraged homeowners from refinancing, while a growing number of foreclosures sidelined potential buyers waiting for house prices to stop tumbling. Pending home sales showing contracts signed in May rose 0.1 percent, compared with a gain of 6.7 percent in April, the National Realtors Association said today.

“The run-up in mortgage rates is exacting a toll in terms of depressing mortgage applications,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. “The economy is in a phase of attempting to find a bottom. Anything that comes in the way of that, like higher rates, is going to mean it takes longer.” via Bloomberg.com

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