Story on rising mortage rates. Some say it’s no big deal, while others panic.
You humble narrator believes there is no need to panic regarding these adjustments. The Feds have to do what they can in the current climate, and we as consumers need to do what we can in the current banking climate.
Story…
Mortgage rates continued their ascent this week, boosted by consumer-confidence data and recent comments from the Fed, Freddie Mac's chief economist said on Thursday.
The benchmark 30-year fixed-rate mortgage jumped to an average 6.37% from 6.21% in the week ending May 24, according to Freddie Mac's weekly survey. It was the benchmark's biggest rate move since Nov. 3, 2005, when rates also jumped 16 basis points. The 30-year fixed-rate loan averaged 6.62% a year ago.
The 15-year fixed-rate mortgage rose to a 6.06% average, up from its 5.92% average last week. That mortgage product averaged 6.23% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages also moved upward, averaging 6.02% for the week, up from last week's 5.92% average. The ARM averaged 6.21% a year ago.
One-year Treasury-indexed ARMs averaged 5.64%, up from last week's 5.48%. The ARM averaged 5.61% a year ago.
To obtain the rates, the 30-year and 15-year fixed-rate mortgages required payment of an average 0.4 point, while the 5-year ARM required an average 0.5 point and the 1-year ARM required an average 0.6 point. A point is 1% of the total loan amount, charged as prepaid interest.
"Stronger than expected consumer confidence and recent comments from members of the Federal Reserve ... raised some inflation concerns in the market, causing it to lower expectations of a Fed rate cut this year. This helped push mortgage rates higher this week," said Frank Nothaft, vice president and chief economist, in a news release.
Indications are that economic growth is on the rise again, increasing the probability that a rate cut by the Federal Reserve isn't in sight -- and that perhaps a rate hike is more likely, said Keith T. Gumbinger, vice president of HSH Associates, a publisher of mortgage and consumer loan information, based in Pompton Plains, N.J. This is creating upward pressure on mortgage rates, he said.
But Gumbinger said that, despite the increases, this is still a low-rate environment. In fact, he sees encouraging signs that the low interest-rate environment is helping to fix some of the problems in the housing market, not only assisting people in buying homes but also helping them refinance out of adjustable-rate mortgages after feeling the pinch of rising ARM rates, he said.
"It's not great news," he said of the most recent mortgage rates, "but it's nothing to get terribly excited about." Absent any major occurrences, he doesn't think the rates will rise much more over the remainder of the year, he said. Freddie Mac also doesn't predict a sharp spike in rates.
"We expect a gradual rise in mortgage rates over the remainder of the year with sales slipping further in the second half of the year. A gradual recovery returns toward the end of 2007 with modest increases in sales and construction during 2008," Nothaft said.
As evidence of the housing slowdown, Nothaft pointed out that the first three months of 2006, when the 30-year fixed-rate mortgage averaged 6.25%, spurred 1.11 million (annualized) new home sales. The first three months of 2007, on the other hand, enjoyed mortgage rates that averaged a bit lower but produced only 0.86 million in sales, a 23% drop.
But the Commerce Department provided a glimmer of hope for the industry, reporting on Thursday that new home sales rose by a seasonally adjusted 16% in April. See full story.
In a separate mortgage survey released on Wednesday, the Mortgage Bankers Association reported that mortgage application volume increased a seasonally adjusted 1.6% during the week ending May 18. Volume was up 23% compared with the same week in 2006. The MBA survey covers about half of all U.S. retail residential originations
[Source Marketwatch]
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