Mortgage rates have risen half a percentage point since setting record lows last fall, and many economists expect them to continue rising for the foreseeable future.
The increase, a reaction to the improving economy and housing markets, could fuel already hot housing markets as potential home buyers look to seal a deal before rates rise any further.
"I think rates will drift slowly higher," said economist Christopher Thornberg, head of the West L.A. consulting firm Beacon Economics. The increases might add as much as 1 percentage point to mortgage rates by the end of next year, he said. "But within these ranges, home prices are still cheap compared to incomes and apartments."
In a weekly survey of what lenders are offering to solid borrowers, Freddie Mac reported Thursday that the average rate for a 30-year fixed loan rose from 3.59% last week to 3.81% early this week. It was the highest in more than a year, contrasting with the record low of 3.31% set last fall.
The rates remain extraordinarily low by historical standards. The typical rate exceeded 16% during inflationary times in 1981 and 1982, Freddie Mac's records show, and the annual average topped 8% as recently as 2000.
The higher rates have arrived as rising home prices and the slowly improving economy also are delivering some good news for mortgage borrowers, who are being offered a wider range of loans on somewhat easier terms these days. That's allowing buyers without 20% down payments to avoid private mortgage insurance, and family members to sign on as co-borrowers without living in the homes, mortgage brokers say.
Easing lending standards have made it more possible for homeowners to tap into their rising equity. And home equity lines of credit, hard to come by after the housing crash, are now offered again by many lenders reassured by recent increases in home prices.
Historically low rates have fueled the long refinancing boom, which will slow considerably if rates continue to rise. Rising rates already are reducing demand for refinance loans. A Mortgage Bankers Assn. report Wednesday for the week that ended May 24 showed applications for refinance loans down 15%.
Purchase applications, by contrast, rose 3%, with demand for purchase mortgages at its highest level in three years, the trade group said.
Home loan rates tend to track the yield on Treasury bonds, which have jumped on expectations that the Federal Reserve may begin reining in its easy-money policies sooner rather than later. The yield on the 10-year Treasury note closed Wednesday at 2.12%, half a percentage point higher than six months ago.
According to trade publication Inside Mortgage Finance, purchase mortgages totaled $119 billion in the first quarter this year, up 15% from a year earlier and the strongest first quarter since 2008.
Syd Leibovitch, president of the real estate firm Rodeo Realty in Beverly Hills, said that the market is already red hot, but that the rise in rates will no doubt have the effect of getting more folks into the market.
"If people aren't motivated by them going up, they should be," Leibovitch said. "These are going to be the lowest rates that they have seen, that their children have seen.... They are never going to believe they were this low."
Steve Goddard, an agent with Re/Max Estate Properties in Manhattan Beach, said it is common for people sitting on the fence to get motivated by rates creeping up.
"When we see an uptick in interest rates, people start to get that feeling that they might have missed the bottom of the market -- which they have already. But sometimes fear is an important factor in buying property," he said. "The interest rates are still very, very good, and people who want to buy a property, if they can, should be out there trying to buy."
The low rates and tight supply also have lured buyers back into the new-home market.
Builders are capitalizing on those low rates as a way of selling larger homes. Patrick Duffy, principal of MetroIntelligence Real Estate Advisors, said the hike in rates is likely to serve as an additional motivating factor for drawing buyers.
"It's been overwhelmingly positive for so long," he said. "I would say if they know they have the verifiable income, especially if they get pre-approved for something, this should get more of them off the dime."
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