The American Dream keeps getting more expensive

With all the ups and downs (mostly downs lately) over housing, one measure has been consistently steady: the 30-year interest rate. Which is odd, considering the number of foreclosures. If interest rates are a reflection of risk of default, then it would be natural that should've been rising, especially since the Fed made no moves to lower them in some time.

Well, that may now be changing:

Even as policy makers rushed to support the two companies, home loan rates
approached their highest levels in five years. The average interest rate for
30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent
on Friday, according to HSH Associates, a publisher of consumer rates. The
average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and
Freddie Mac, was 7.8 percent, the highest since December 2000. Loan rates are
rising because of concern in the financial markets about the future of Fannie
Mae and Freddie Mac, which own or guarantee nearly half of the nation’s $12
trillion mortgage market. The federal government has proposed a rescue, and
has urged Congress to approve it quickly.

There are a couple of things at work here. First, there is this news, which would seem to give bankers a parachute should more defaults arise. Secondly, for the banks to continue to loan out cheap money is not necessarily the best sign to investors that you are serious about only giving out good loans. The higher interest rates should act as a signaling device that only those who can afford home ownership should apply.

Woes afflicting mortgage giants raise loan rates

Related: Bush drops opposition to housing bill