Posted on: Friday, March 11, 2005

30-year fixed rate rises to 5.85%

By Joe Richter
Bloomberg News Service

WASHINGTON — The average fixed rate on a 30-year mortgage rose this week to 5.85 percent, the highest since August and the fourth straight increase, according to U.S. mortgage purchaser Freddie Mac.

The rate increased from 5.79 percent and was the highest since the week ended Aug. 13, when it also was 5.85 percent. It's risen since reaching a 10-month low of 5.57 percent in the middle of February.

Payroll growth and mortgage rates below 6 percent resulted in a record 7.98 million homes sold last year, according to government and industry figures. A gauge of home purchase applications rose last week to the highest level this year, suggesting borrowing costs have yet to impede buyers.

"The housing market continues to boom," said Tim Rogers, chief economist at Briefing.com in Boston. "It's probably going to take mortgage rates at least in the mid-6 percent range to significantly slow housing demand."

Mortgage rates are tied to the yields on long-term securities such as 10-year Treasury notes, which rose this week as gains in oil prices and employment raised concerns about inflation. A Labor Department report on March 4 showed U.S. employers added 262,000 workers in February, the most since October.

The "employment report reinforced the perception that the economy is on sure footing, leading bond markets to push interest rates higher again this week," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "Although inflation remains tame, the recent spike in oil prices does put inflationary pressure on the economy and was an additional factor in causing higher interest rates."

The Standard & Poor's Supercomposite Homebuilding Index, consisting of 14 builders, fell 1.6 percent today and is down 6 percent this month.

The one-year adjustable mortgage rate rose to 4.24 percent from 4.14 percent, Freddie Mac said. The 15-year fixed rate rose to 5.38 percent from 5.33 percent.

Corporate spending on plant and equipment led economists to raise their first-quarter U.S. growth forecasts, a Bloomberg News survey found. The economy is projected to expand at a 4 percent annual pace from January through March, according to the median estimate of the survey, which was conducted March 1-8 among 66 economists. Last month, they forecast 3.6 percent for the current quarter. The jump from one month to the next was the biggest since October 2003.