Posted on: Friday, May 13, 2005

30-year mortgage rates up slightly

By Victor Epstein
Bloomberg News Service

The average rate on a 30-year mortgage rose for the first time in six weeks as signs of faster economic growth led to rising yields on the government bonds that help determine home-lending rates.

Thirty-year fixed mortgage rates rose to 5.77 percent this week from 5.75 percent a week earlier, said Freddie Mac, a government-chartered company that is the second-biggest purchaser of U.S. mortgages. Other lending rates, including for 15 years, also edged up.

Yields on the 10-year Treasury bond, which are used as a benchmark for mortgage rates, increased this week as government reports on retail sales, job creation and the trade deficit suggested U.S. economic growth was accelerating after a March lull. Reduced demand for government bonds pushes yields, and mortgage rates, higher.

"I'm not sure if this will be another record year for housing, but it's going to be close," said John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. "Given rapid home price appreciation and job creation, it's very hard to make the case that sales are going to go down."

Thirty-year fixed mortgage rates would have to rise a further 1ý percentage points before they start to curb home sales, Silvia said.

The one-year adjustable mortgage rate rose to 4.23 percent this week from 4.22 percent, according to McLean, Va.-based Freddie Mac. The 15-year fixed mortgage rate rose to 5.33 percent from 5.31 percent. Fannie Mae is the biggest purchaser of U.S. mortgages.

"We expect mortgage rates to remain relatively low for the time being," Frank Nothaft, chief economist at Freddie Mac, said.

Housing sales have set annual records in each of the past four years. The National Association of Realtors and the Mortgage Bankers Association both forecast slower sales this year.

The 30-year fixed mortgage rate remains within a percentage point of the 5.21 percent low set June 20, 2003, according to Freddie Mac. The rate is down 27 basis points from the week ending April 1. A basis point is 0.01 percentage point. Since the start of 1980, 30-year fixed mortgage rates have averaged about 9.6 percent.