Mortgage markets worsened for the 7th straight day Tuesday.

Conventional, 30-year fixed mortgage rates are now scratching 5 percent, with FHA mortgage rates running roughly the same.

This is a huge increase from just 11 weeks ago when mortgage rates were riding an 8-month-long hot streak, and appeared headed into the 3s.  So what happened?

On November 3, as additional support for markets, the Fed announced its second round of bond buys, a $600 billion program dubbed QEII -- short for Quantitative Easing, Round II. QE is  a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. 

That's when low rates ended. Here's why:

(A) Inflation makes the U.S. dollar lose its value,

And, (B) U.S. mortgage bond payments are paid in U.S. dollars.

Therefore, (C) Inflation makes mortgage bond repayments lose their value.

When mortgage bond repayments are worth less, bond demand falls among the global investor set and that causes bond prices to fall along with it. When bond prices fall, mortgage rates rise and that's exactly what we're seeing right now.

Since the Fed's QEII announcement, mortgage rates have soared and home affordability is taking a hit.  On the flip side, the Dow Jones Industrial Average (INDU) has gained almost a 1,000 points during this same period.  Consumer confidence is up and unemployment is down. 

If you're looking for a great "deal" with low, long-term payments, the time to get in contract may be now.  Because of rising rates, homeowners have lost roughly 10% of their purchasing power since November.

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