Rob Braunstein said his search for a three-bedroom home on a quiet street in Needham, Massachusetts, is taking on more urgency, as he watches mortgage rates tick higher. Every increase, he worries, shrinks his budget by boosting monthly payments, he said.
The average rate for a 30-year fixed mortgage has risen for each of the past five weeks and is at the highest level in more than a year, according to government mortgage-buyer Freddie Mac. While that's already put a dent in the refinancing boom that has powered bank earnings this year, for buyers like Braunstein, the message is clear: buy quickly.
"Refinancing depends only on mortgage rates and therefore is very sensitive to changes in rates," said Jed Kolko, chief economist at San Francisco-based Trulia Inc, an online property listing service. When it comes to buying, "some people might want to hurry up and make a purchase, but with inventory so tight they might not be able to move that fast."
Rates for a 30-year home loan rose to 3.91 per cent in the week ended today, from 3.81 per cent, McLean, Virginia-based Freddie Mac said in a statement. That's up from 3.35 per cent at the start of May, as the Federal Reserve signaled to bond investors it may scale back the stimulus that had driven borrowing costs to record lows, amid signs of continuing improvement in housing and the US economy. The 15-year rate has increased to 3.03 per cent from 2.56 per cent at the start of last month. Bankrate Inc, an interest-rate aggregator, said today that the benchmark 30-year fixed mortgage rate has climbed to 4.1 per cent, according to its weekly national survey.
'Reasonable certainty'
"Have we seen the rock bottom for interest rates go past?" said Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage information website. "That's a pretty reasonable certainty. We are off the record lows. To get back to those record lows, we'd need to see a considerable slowdown in the economy."
Mortgage applications to purchase homes fell 1.6 per cent last week and are six per cent below a three-year high at the beginning of last month. Applications to refinance loans dropped 15 per cent, the fourth straight decline, to the lowest level in more than a year, according to the Mortgage Bankers Association.
The Fed said yesterday the economy expanded at a "modest to moderate" pace in 11 of 12 Fed districts, with broad-based gains ranging from business services to construction and manufacturing, based on a survey concluded May 24.
'Bad news'
"Right now, the bad news for mortgage rates is all the good news we're seeing for the economy," said Mark Goldman, a mortgage broker at C2 Financial Corp. in San Diego. "When investors are afraid, they go to the bond market, and when they feel optimistic, they go to the stock market."
Fed officials will meet June 18 to consider whether they will curtail the pace of their mortgage-bond purchases. The Fed has been buying $45 billion of Treasuries and $40 billion of mortgage bonds a month to push down borrowing costs.
Their decision may hinge on employment, and the picture remains murky. Companies in the US hired fewer workers than projected in May, the ADP Research Institute reported yesterday, suggesting the Fed may move cautiously to withdraw from the market. Ending the $85 billion monthly bond-buying effort too soon would do more harm than good, Fed Chairman Ben S Bernanke said two weeks ago in testimony to Congress.
