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Rise in Mortgage Rates No Surprise

NEW YORK ( TheStreet) -- It was bound to happen.

Pfizer - Growth

On Thursday, just a day after Federal Reserve ended its $1.25 trillion mortgage-buying spree, Freddie Mac (FRE) gave the first major signal that the housing market could face further impediments. Freddie's weekly survey showed a sharp climb in mortgage rates, with the price of a 30-year fixed mortgage hitting the highest level since January.

But investors should take pause before concluding that the nascent housing-market recovery will be torn asunder.

First, it's worth pointing out that the Fed's move isn't wholly responsible for the rise in mortgage rates. The central bank has been gradually winding down its mortgage-backed securities purchases for several months, and the coming end was widely broadcast. The climb had more to do with the recent spike in Treasury bill yields, which are struggling to regain investors who jumped into riskier waters.

Equities have risen in recent weeks, as have junk bonds, which reached a record issuance of $38.3 billion for March and $61 billion for the quarter. A report this week that investors are moving back into the private-label mortgage-backed securities market for the first time, literally, in years also debunks the theory that no one will step in to fill the Fed's shoes. The spread between mortgage rates and Treasurys remains at a historically low level, suggesting that mortgage rates are tracking the broader market, not just the end of the Fed program.

If anything, investors appear to be itching to get back into mortgages, which have been dominated by the Fed, Freddie, Fannie Mae (FNM) and other government-backed agencies for over a year.

From a borrower's point of view, mortgages are still cheap. The weekly jump in rates ignores the longer-term trend line, as well as huge changes to mortgage-workout programs to further stabilize the market. Ultimately, the main hindrance hasn't been an issue of price, but underwater borrowers' lack of incentive, and unemployed borrowers' lack of ability, to pay anything at all. Treasury Secretary Timothy Geithner's statement on Thursday that the 9.7% jobless rate will remain "unacceptably high" for a long time did little to dispel that reality.

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