Today Freddie Mac reported another week of dramatic mortgage interest rate hikes. The average rate on a 30-year fixed rate mortgage grew to 5.59 percent during the week ended June 11, 2009, up from 5.29 the previous week. That is the highest rate since the week ended November 26, 2008, and represents almost a point difference from the all-time record low of 4.78 percent in April.

So what is behind another huge jump in rates? According to Freddie Mac’s vice president and chief economist, Frank Nothaft:

“Mortgage rates followed the increase in bond yields this week as the May employment report showed that the economy lost fewer jobs than the market consensus had expected,” …As a result, federal funds futures rose after the report, signaling that the market expects the Federal Reserve may raise its benchmark rate sooner rather than later.”

So as the economy seems to be beating analysts’ expectations, mortgage rates are rising. While rates are still quite low by historical standards, the trouble is there are still plenty of struggling homeowners looking to refinance into lower rates to save their homes. The higher rates go, the less helpful refinancing will be in stemming the tide of foreclosures. And all this in spite of the Federal Reserve’s best efforts to keep mortgage rates low by zeroing out its funds rate and buying up toxic mortgage-based securities from worried lenders.

So the paradoxical cycle continues – the economic outlook starts to look, not good, but at least not as bad, causing mortgage rates to rise, resulting in more foreclosure among those who bought or refinanced during the housing bubble. Apparently even the government cannot keep this cycle from playing out. Maybe this is just the natural re-balancing of the housing market to pre-boom days.