Ready the tourniquets.

Inflation may finally have opened a main artery in the mortgage market and heel-dragging home buyers, along with procrastinating home owners considering refinancing, could really begin to see red.

"Don't wait ten minutes," to lock in a rate, one mortgage broker told a customer waffling on a refinance this week.

"We've had a long run. I hate to see it end," said a loan officer from a major mortgage bank. "But this is the other side of the market now."

Federal Reserve Chairman Alan Greenspan earlier this year had labeled as a "conundrum" the way 30-year mortgage rates continued falling even as the Fed took a "measured" approach to standing down inflation by raising benchmark short-term rates incrementally -- a quarter point seven times in each of its last seven meetings, including one this week.

Home equity loan rates and other short-term consumer rates tied to the prime, which directly follow the Fed's moves, have been nursing nose bleeds for months since last fall in a thinner atmosphere of higher rates.

Now the "conundrum" of lower long term rates (including those for 30-year mortgages) appears about to lose enigmatic status and give way to very real inflation fears. An ongoing bond market sell-off and the Fed's move this week drove 10-year treasury yields to nine-month peaks this week. Two-year note yields rose to the highest levels since 2001 and five-year notes rose to mid-2002 levels.

Because long-term treasury yields influence the mortgage market, the average 30-year fixed-rate mortgage has been moving higher too, from 5.57 percent in mid-February to nearly six percent last week, according to Freddie Mac's weekly survey.

"The experts are saying there's a chance the rates could come back down a bit, that there was an over reaction, but it's a crap shoot. You just can't count on it" said Earl Peattie, vice president of National Financial News Service in Philadelphia, PA.

It's the kind of risk consumers haven't known for years and how they will react remains uncertain. Decision-making speed, however, is mandatory.

"It depends on the situation. You have to ask yourself 'How soon do I do this? Can I take advantage of rates now or am I better of waiting weeks or months from now?' It's a timing issue. Finding the right property and having all your reserves ready to go forth with a loan," said Peattie.

After mortgage rates remained at record levels for years, a growing consensus, perhaps prematurely, suggested rising long-term mortgage rates was inevitable.

The mortgage market has begun to catch up with those predictions.

The Mortgage Bankers Association said mortgage survey of activity for the week ended March 18 revealed mortgage origination activity was down 9.5 percent from a week ago and 39.3 percent from a year ago. Lending has declined in the five of the past six weeks.

The association said purchases are off by 3.5 percent while refinancing applications dropped 16.5 percent. Refinancing constituted 39.5 percent of all mortgage activity a week ago, down from a 42.9 percent share in the previous week.

Higher fixed rates are creating a run on cheaper adjustable rate mortgages, or ARMs, which accounted for 33.5 percent of all activity last week compared to only 32.4 percent a week earlier.

"I suggest locking in a rate because once the rate is gone, you can't go back. I'm definitely advising locks," said Brandon Knapp with Lawson & Associates Mortgage Planners in Campbell, CA.

Published: March 24, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.