Av­er­age 30-year mort­gage rate rises above 4%

A strong re­port on the job mar­ket was largely re­spon­si­ble for the in­crease, an­a­lysts say.

Los Angeles Times - - BUSINESS BEAT - By E. Scott Reckard scott.reckard@la­times.com Twit­ter: @Scott Reckard

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.

Steve Hel­ber As­so­ci­ated Press

MORT­GAGE LENDERS are fore­cast­ing that the av­er­age 30-year loan rate will in­crease to about 4.5% by the end of the year and rise fur­ther next year.

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