The forty basis point jump in long term credit rates, including mortgages, from early May to early June has now been reversed. But we should not forget the immediate impact this had on mortgage applications and bank lending volume, including commercial mortgages.  This was a preview of what will happen when the credit constrain becomes binding sometime next year.

The quick spike in credit rates, premature as it turns out, was possible because lenders are nervous about the adequacy of credit when the recent drop in GDP is largely reversed.  Lenders are also, for the first time, especially concerned about the ability of the US to attract credit in competition with other countries in a constrained market.

The prospective credit constrain has two components which you should watch separately.  These are the normal rise in rates during an economic recovery and the possible extra rise in rates from the rapid …