Posted on: Friday, September 5, 2003

Mortgage costliest since last summer

By Jeannine Aversa
Associated Press

WASHINGTON — Rates on 30-year mortgages climbed this week to the highest level since last summer.

The average rate rose to 6.44 percent for the week ending Sept. 5, up from 6.32 percent last week, Freddie Mac, the mortgage giant, reported yesterday in its weekly nationwide survey.

This week's rate was the highest since the week ending July 19, 2002, when 30-year mortgages averaged 6.49 percent, Freddie Mac said.

The recent upward swing marks a turnaround from the middle of June, when rates on 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades.

Factors contributing to rising rates include signs the economy is picking up speed and concerns about swelling federal budget deficits, economists say. Those factors have pushed bond rates up, causing long-term mortgage rates to rise.

"The 10-year Treasury bond yields continue to climb, raising mortgage rates as they go," said Amy Crews Cutts, a Freddie Mac economist. "Also contributing to the current rise in rates is the growing number of favorable news reports about an upturn in economic growth."

For 15-year fixed-rate mortgages, a popular option for refinancing, rates rose to 5.77 percent this week from 5.66 percent last week. Rates for one-year adjustable mortgages increased to 3.98 percent from 3.88 percent.

Rising mortgage rates have cooled home loan refinancing.

The Mortgage Bankers Association of America said its index of refinancing activity fell last week by 8.6 percent, the ninth straight decline.

Even with higher mortgage rates, sales of both previously owned homes and new ones are expected to post record highs this year, said David Lereah, chief economist at the National Association of Realtors.

Rising long-term interest rates currently "do not pose a major risk to continuing strength in housing or the recovery in corporate investment, in my view, though they may well end the boom in mortgage refinancing activity," Federal Reserve Governor Ben Bernanke said in a speech yesterday.

"Since those consumers who had the most to gain from refinancing have mostly already done so, a slowdown in refinancing is unlikely to have a significant effect on household spending," he added.