Reports this morning are indicating that pending home sales posted their biggest increase in 8 years. But the pending sales might evaporate as a result of increased mortgage rates.

Pending U.S. home sales in April posted the biggest monthly jump in nearly eight years, a sign that home sales are finally coming to life after a long and painful slump...

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future existing home sales.

Indeed when an offer on a house is accepted the sale becomes "pending." As the article says, it's then usually a month or two before the sale closes. These sales haven't happened yet--they're in the pipeline.

The problem is that many of those sales might have been dependent on 4.8% mortgage rates that were prevailing back in April and early May. Unfortunately last week mortgage rates jumped to 5.5%. They eased somewhat towards the end of the week, but as of this morning they are back up to 5.375% and, based on increasing treasury rates, may very well pop back to 5.5% today or tomorrow.

Update 10:30AM: 30-year and 20-year mortgage rates at Wells Fargo just popped back to 5.5%, as predicted a couple hours ago.

Update 6/5/2009: 30-year and 20-year mortgages now up to 5.625%.

Update 6/8/2009: 30-year mortgages now up to 5.75%.

Update 6/10/2009: 30-year mortgages now up to 5.875%.

The problem is that some borrowers that qualified for a purchase at 4.8% may not qualify at 5.5% since that would necessitate a higher monthly payment. That means that some of these pending sales may collapse if the borrowers didn't lock their rate.

Interest rates are being driven up by the massive deficit spending of the Obama administration. The Federal Reserve has been trying to push rates down by printing money but, lately, it's becoming clear that they're losing that battle. And in the absence of a sufficient monetization of Obama's deficit, this massive federal spending is going to crowd out prospective homebuyers from the market via higher interest rates... and that will harm the housing market rather than help it.

It would seem increasingly likely that the Federal Reserve is either going to have to abandon its effort to drive rates down or is going to have to announce a massive new money-printing effort.

In the meantime it remains to be seen whether the recent jump in mortgage rates will allow the record increase in pending sales to become real, finalized sales.