Posted on: Friday, July 18, 2003
30-year mortgage rate climbs for fourth consecutive week
By Courtney Schlisserman
Bloomberg News
The average rate on a 30-year fixed home mortgage jumped for a fourth straight week, reflecting rising yields on Treasury securities amid expectations of faster economic growth, according to Freddie Mac, the No. 2 buyer of U.S. mortgages.
The rate rose to 5.67 percent, the highest since May 2. Last week the average was 5.52 percent, and a year ago, 6.49 percent.
U.S. 10-year Treasury notes fell for a third day in four, pushing up yields, as evidence of economic strengthening emerged. Federal Reserve Chairman Alan Greenspan's comments in congressional testimony earlier this week that the economy is poised to accelerate sparked the slide in Treasury prices.
"Greenspan told Congress that he's optimistic that the economy will take off in the second half of this year," said Frank Nothaft, Freddie Mac's chief economist. "This was seen as a sign that there was no more need for any additional rate cuts. In response, bond yields rose dramatically, taking mortgage rates up with them."
The Treasury's benchmark 3 5/8 percent note maturing in May 2013 fell 1/2 point at 12:30 p.m. yesterday in New York, pushing the yield up 6 basis points to 3.98 percent. A basis point is 0.01 percentage point.
Statistics issued yesterday suggesting economic acceleration include the highest rate of housing starts since January, the lowest total of continuing jobless claims in two months and the third straight monthly expansion in Philadelphia-area manufacturing.
In addition, the National Bureau of Economic Research said the recession that started in March 2001 ended eight months later, making it shorter than the average contraction.
"Housing played a big part in the shortness and shallowness of the recession and continues to fuel the recovery," said Nothaft.
Housing starts in June rose 3.7 percent, more than expected, as record-low mortgage rates boosted demand, the Commerce Department said in Washington. Builders started work on 1.803 million homes at an annual rate last month.
The average rate on a 15-year mortgage, a popular refinancing option, rose to 5 percent from 4.85 percent this week, Freddie Mac said. The rate on a one-year adjustable mortgage increased to 3.58 percent from 3.55 percent, up from a record low of 3.45 percent last month.
The recent rebound in mortgage rates "is not expected to do too much damage to real estate markets," said David Greenlaw, senior economist at Morgan Stanley in New York, in a research note.
"Financing rates remain quite low from a longer run perspective. And an expected pickup in income growth should provide some offset and help keep housing affordability near its recent highs. Moreover, a low inventory of unsold new homes suggests that the pace of homebuilding should remain elevated for many months to come."
The monthly payment on a $100,000 mortgage at this week's 30-year fixed rate of 5.67 percent would be $578.50, up from $569.04 at last week's rate and down from $631.41 a year ago.
