Posted on: Friday, July 4, 2003

Fed's small cut helps push mortgage rates to seven-week high

By Jeannine Aversa
Associated Press

WASHINGTON — Rates on 30-year and 15-year mortgages jumped to a seven-week high this week. But even with the increase, mortgage rates likely remain at sufficiently low levels to support the housing market, one of the economy's few bright spots.

The average rate on a 30-year fixed-rate mortgages for the week ending July 4 was 5.40 percent, a sizable increase from last week's rate of 5.24 percent, Freddie Mac, the mortgage giant, reported yesterday in its weekly nationwide survey.

Three weeks ago, rates on 30-year mortgages slid to a new weekly low of 5.21 percent, the lowest level since Freddie Mac began tracking this benchmark mortgage in 1971. Records that reach back earlier indicate that the rate is the lowest in more than four decades, economists said.

For 15-year fixed-rate mortgages, a popular option for refinancing, rates rose to 4.75 percent, up from 4.63 percent last week.

This week's rates for both 30-year and 15-year mortgages were the highest since the week ending May 16, when rates stood at 5.45 percent and 4.84 percent, respectively.

The recent rise in mortgage rates was influenced by the Federal Reserve's decision last week to cut a key short-term interest rate by just one-quarter percentage point, instead of the bolder, half-point cut that Wall Street investors wanted. The Fed's statement "led financial markets to expect that the economy should begin to pick up soon and that caused bond yields to rise pretty steadily," said Frank Nothaft, Freddie Mac's chief economist.

Economic reports since then have offered mixed signals about where the economy may be heading.

Rates for one-year adjustable mortgages also climbed this week to 3.49 percent. That compared with last week's record low of 3.45 percent. Freddie Mac's records on one-year ARMs go back to 1984.

Still, mortgage rates are low enough to keep the housing market healthy and keep home-mortgage refinancing activity brisk, economists said.

Extra cash or savings coming from refinancing deals along with rising home values are major forces underpinning consumer spending and thus far are helping to offset the effect of rising unemployment. The nation's jobless rate climbed to 6.4 percent in June, a nine-year high.

Refinancing activity accounted for 75.6 percent of all mortgage loan applications filed last week, down slightly from 75.8 percent the week before, the Mortgage Bankers Association of America reported.

This week's mortgage rates do not include add-on fees known as points. Thirty- and 15-year loans each carried an average fee of 0.5 point, while one-year adjustable mortgages had an average fee of 0.7 point.

A year ago, rates on 30-year mortgages averaged 6.57 percent, 15-year mortgages were 6.03 percent and one-year adjustable mortgages stood at 4.58 percent.