When the nation's central bank sent strong signals this week that the recession has turned the corner, mortgage lenders in Steamboat looked for the meaning behind the news release.
Kathryn Pedersen, vice president of mortgage lending at Yampa Valley Bank, took note of the interpretation made by David Kelly, chief marketing strategist for J.P. Morgan Chase. What did she hear?
"Do it now," lock in a mortgage at current rates, Pedersen told an audience during a panel discussion Wednesday at the Steamboat Springs Community Center. "The Fed is telling us that long-term rates will be higher."
And on Thursday, the Associated Press reported the average rate for a 30-year fixed mortgage was 5.42 percent, up from 5.38 percent a week ago.
Pedersen said rates have fluctuated this month, jumping up, then retreating before advancing again this week.
The AP reported Wednesday that the Federal Reserve had issued a statement that amounted to a vote of confidence in the economy, saying it would invoke no new measures to combat the ongoing recession. Although it remains severe, the Fed has signaled that the recession's grip may be easing.
If an economic recovery is near, many analysts conclude that inflation cannot be far behind.
"Just mention the 'I' word, and rates tick up by a quarter percent," Pedersen said.
Lenders quickly respond to any inflationary trend to ensure that the return on their money conserves its buying power, she explained.
Pedersen told her Steamboat audience that the Fed has promised to purchase $1.25 trillion in mortgage bonds in an effort to keep mortgage rates low. To this date, the Fed has committed almost half that amount. Both home buyers and the stock market would like to see the Fed spend more of that money. But analysts say the Fed is balancing its need to stimulate the economic recovery with the risk of triggering inflation.
Mortgage rates declined to a record low of 4.78 percent earlier this year, the AP reported. But they bounced as high as 5.6 percent earlier in June after yields on long-term government debt, which are closely tied to mortgage rates climbed.
Realtor Pam Vanatta, of Prudential Steamboat Realty, told Pedersen's audience that even though interest rates are nudging upward, they still are lower than most periods during the past 25 years.
She had just obtained her real estate license in October 1987 when the stock market dropped precipitously, a day that became known as Black Monday. That economic crisis was followed by interest rates greater than 11 percent.
"I can remember people celebrating when interest rates finally dropped below 10 percent," Vanatta said.
But then, 11 percent sounds attractive compared to July 1984 when the average monthly rate on a 30-year fixed loan was 14.75 percent.