U.S. mortgage rates have suddenly jumped from near-record lows
and are adding thousands of dollars to the cost of buying a home.
The average rate on the 30-year fixed loan soared this week to 4.46
percent, according to a report Thursday from mortgage buyer Freddie Mac. That’s
the highest average in two years and a full point more than a month ago.
The surge in mortgage rates follows the Federal Reserve’s signal
that it could slow its bond purchases later this year. A pullback by the Fed
would likely send long-term interest rates even higher.
In the short run, the spike in mortgage rates might be causing
more people to consider buying a home soon. Rates are still low by historical
standards, and would-be buyers would want to lock them in before they rise
further.
But eventually, more expensive home loans could price some
people out and slow the housing market’s momentum, which has helped drive the
U.S. economy over the past year.
“People are getting off the fence a little bit more or choosing
to buy now instead of choosing to buy three months from now,” said Anthony
Geraci, a Cleveland real estate broker-owner who says he’s seeing more sales
activity lately in his market.
Mortgage rates are rising because they tend to track the yield
on the 10-year Treasury note, a benchmark for most long-term interest rates.
The 10-year yield began rising from near-record lows in May after speculation
grew that the Fed might be closer to reducing its bond purchases.
In early May, the average rate on a 30-year mortgage was 3.35
percent, just above the record low of 3.31 percent.
But rates began to surge – and stocks plunged – after Fed
Chairman Ben Bernanke made more explicit comments last week about the Fed’s
plans. He said the Fed would likely begin to scale back its bond buying later
this year if the economy continued to strengthen.
The rate on 30-year loan soared from 3.93 percent last week to
4.46 percent this week – the biggest one-week jump in 26 years.
The effect on buyers’ wallets in just the past two months is
striking.
A buyer who locked in a 3.35 percent rate in early May on a
$200,000 mortgage would pay $881 a month, according to Bankrate.com. The same
mortgage at a 4.46 percent rate would run $1,008 a month.
The difference: $127 more a month, or $45,720 over the lifetime
of the loan. Those figures don’t include taxes, insurance or initial down
payments.
Jed Kolko, chief economist at Trulia, a real estate data
analysis firm, thinks many would-be buyers will start to take note.
“Some buyers will reconsider jumping into the market; others
will speed up their (home) purchases before rates go higher,” Kolko said.
The rate hike comes at a critical time. Low mortgage rates have
helped fuel a housing recovery that has kept the economy growing modestly
despite higher taxes and steep federal spending cuts.
Lower rates have also inspired a refinancing boom over the past
two years. Many homeowners have locked in rates below 4 percent. That has
lowered their monthly payments, leaving them with more cash to spend elsewhere
and fuel more economic growth.
The average rate on a 15-year fixed mortgage, a popular
refinancing instrument, soared this week to 3.50 percent – its highest point
since August 2011 – from 3.04 percent last week.
A report this week suggested that the economy might not be as
strong as some had thought. The government cut its growth estimate for the
January-March quarter to an annual rate of just 1.8 percent – much lower than
the 2.4 percent rate it estimated a month ago. * Source: Associated Press.
