Posted on: Friday, August 22, 2003
Mortgage rates rise modestly for the week
| • | Current mortgage rates |
By Martin Crutsinger
Associated Press
WASHINGTON — Rates on 30-year mortgages rose again this week, the seventh increase in the past eight weeks, but they still remain slightly below one year ago.
The average rate on 30-year mortgages, which dipped to 6.24 percent last week, climbed to 6.28 percent this week. Even with the increase, the rate was slightly below this year's high of 6.34 percent, set two weeks ago.
Rates on 30-year mortgages hit a historic low of 5.21 percent in mid-June, reflecting a huge rally in the bond market as investors became convinced that the Federal Reserve's concerns about deflation would lead it to pursue unconventional means to bolster the economy, such as buying longer-term Treasury securities.
However, when the Fed indicated that use of unconventional methods was not imminent, the bond market retreated and yields on various Treasury securities began heading higher, a change that has been reflected in mortgage rates.
Rates on 30-year mortgages are now more than a full percentage point above their four-decade low. Most economists believe they will climb higher as investors see more indications that the economy is beginning a sustained rebound. In an effort to ensure a slow and steady recovery, Fed officials have stressed that they are prepared to keep the short-term rate they directly control at a 45-year low for a considerable length of time.
Frank Nothaft, Freddie Mac's chief economist, noted that even with the upswing in mortgage rates, the housing industry has continued to prosper, with new construction of homes and apartments hitting a 17-year high in July.
"Even as mortgage rates continued to climb in August, builder confidence reached its highest level in 3› years in August," Nothaft said, citing the most recent survey by the National Association of Home Builders. "That would seem to indicate that 2003 will continue to have an outstanding year in housing."
However, other economists have expressed concerns that if mortgage rates rise at a rapid clip, it will begin to dampen sales.
The Freddie Mac survey showed that rates on other mortgages were also up this week.
The rates for 15-year fixed mortgages, a popular option for refinancing, rose to 5.60 percent this week, up from 5.58 percent last week. Rates for one-year adjustable mortgages rose to 3.84 percent, up from 3.75 percent.
The rise in mortgage rates has sharply curtailed refinancing activity, which has fallen by more than one-third since it peaked in late May and early June. The Mortgage Bankers Association said that its index of refinancing activity fell by 14.9 percent last week from the previous week.
The MBA's composite index of applications for new mortgages and refinancing activity during the week ending Aug. 15 was down 10.7 percent compared with the previous week, 33.9 percent lower than the same period a year ago on an unadjusted basis.
Jay Brinkmann, MBA's vice president of research and economics, said that one factor that depressed mortgage applications last week was the power blackout in the Northeast and Midwest, which shut down many mortgage offices for at least a day.
Refinancing has played an important role underpinning the economic engine of consumer spending as Americans have used the money saved on their monthly mortgage payments to boost their purchases of other items.
Economists are hopeful that fatter paychecks and other incentives from President Bush's third tax cut will encourage spending as refinancing slows.
A year ago, rates on 30-year mortgages averaged 6.27 percent, 15-year mortgages were 5.71 percent and one-year adjustable mortgages stood at 4.34 percent.
