Posted on: Friday, December 3, 2004

Mortgage rates rise on inflation concerns

By Jeannine Aversa
Associated Press

WASHINGTON — Rates on 30- and 15-year mortgages rose sharply this week as expanding economic activity raised inflation concerns among Wall Street investors.

Freddie Mac, in its weekly survey released yesterday, said rates on 30-year fixed-rate mortgages climbed this week to 5.81 percent, up from 5.72 last week. This week's rate was the highest since early October.

Rates on 30-year mortgages hit a high this year of 6.34 percent the week of May 13. After that, rates had drifted lower as the economy hit a soft spot that eased concerns about an inflation flareup.

Recently, there have been signs that the economy is moving ahead at a solid pace.

"Recent economic indicators came out better than had been anticipated, buoying financial markets this week and reinvigorating confidence in financial markets that the last three months of the year will post a very positive rate of economic growth," said Frank Nothaft, Freddie Mac's chief economist.

"Of course, with the signs of strong growth come fears of inflation and that tends to push up long-term mortgage rates," he added.

For 15-year, fixed-rate mortgages, a popular option for refinancing, rates this week averaged 5.23 percent — also the highest since early October. That compared with 5.15 percent last week.

Even with the increases, mortgage rates are still low by historical standards. And that's powering home sales, which are expected to hit record highs for all of 2004.

One-year adjustable rate mortgages sank to 4.19 percent this week, from last week's rate of 4.27 percent.

The nationwide averages for mortgage rates do not include add-on fees known as points. Each loan type carried a 0.6 point fee.

A year ago, rates on 30-year mortgages averaged 5.89 percent, with 15-year mortgages at 5.22 percent and one-year ARMs at 3.77 percent.

Separately, home prices increased nearly 13 percent during the 12 months ending Sept. 30, reported the Office of Federal Housing Enterprise Oversight. "The growth in house prices over the past year surpasses any increase in 25 years," said director Armando Falcon.