Average 30-year mortgage rate rises above 4%
A strong report on the job market was largely responsible for the increase, analysts say.
The average interest rate on 30-year conventional home loans shot back above 4% this week for the first time since November, pushed by news of a strengthening economy. And a trade group predicts that rates will continue rising into next year.
Analysts said a strong report on the U.S. job market was largely responsible for the increase. A contributing factor was improvement in the European economy, which has produced signs of increasing inf lation when many had feared the region was “sliding toward def lation,” said Mike Fratantoni, chief economist for the Mortgage Bankers Assn.
With the markets now expecting the Federal Reserve to raise a benchmark lend- ing rate from near zero in September, the mortgage lenders forecast has 30-year rates increasing to about 4.5% by the end of the year, and rising further next year.
Even so, Fratantoni said the group expects that mortgages for home purchases will increase to $730 billion this year from $638 billion last year, driven higher by the stronger job market, increases in home prices and a decline in the number of cash purchases.
“The increase in rates will be a bit of a head wind for purchases,” he said, “but the increase in household incomes from the tighter job market will more than offset the higher rates.”
On the other hand, refinance volume is expected to drop sharply, from a projected $345 billion in the first half of this year to only $216 in the second half.
Freddie Mac’s widely followed weekly survey, released Thursday, showed the 30-year mortgage at an average interest rate of 4.04%, up from 3.87% a week ago. The average for a 15- year mortgage rose to 3.25% from 3.08%, and the start rate for an adjustable-rate loan with a fixed rate for the first five years was 3.01%, up from 2.96%.
Freddie Mac, one of the nation’s two major mortgage finance firms, asks lenders each week about the terms they are offering to solid borrowers for mortgages of up to $417,000. The borrowers would have paid a little more than half of 1% of the loan balance in upfront fees and discount points.
Mortgages tend to track the yield on the benchmark 10-year Treasury bonds, which have risen to about 2.4% from a recent low of 2.1% in late May.
“With prospects for growth and inflation both on the rise, investors are moving money out of safe but low-yielding government bonds in search of better returns,” said Keith Gumbin- ger, vice president at HSH.com, a website that tracks the rates.
Noting the unlikely possibility that the Fed could raise its benchmark rate as early as next week at its regular meeting, Gumbinger said that investors “don’t wish to be caught leaning the wrong way” whenever the Fed decides to act.