News Column

Fixed Mortgage Rate Crests 4 Percent

June 6, 2013
hispanic home buyers

Mortgage interest rates have broken the 4% mark for the first time in a year and may eventually cool home price gains.

Rates jumped to 4.07% last week for a 30-year-fixed rate loan, the Mortgage Bankers Association said Wednesday. That's up from 3.59% from early May.

Economist Christopher Thornberg of Beacon Economics expects interest rates to settle between 4% and 5% next year.

Higher rates have pummeled refinancings, but they probably won't derail the national housing recovery, economists say.

For home buyers, rates' move will be little more than a "blip," says Jed Kolko, chief economist for real estate website Trulia. That's because rates are still low and home prices, while higher, are still far from prior peaks.

Some buyers may even try to speed up their purchases so they get in before rates go higher, Kolko says.

"When interest rates go up, it scares people and they get off the fence because they don't want to miss the great interest rates," says John Burns, CEO of John Burns Real Estate Consulting.

Other rates also have risen as financial markets have reacted to recent Federal Reserve officials' comments on when the Fed might begin to taper its purchases of mortgage-backed securities and Treasury bonds. Those purchases have helped keep interest rates low.

The yield on the 10-year Treasury bond fell slightly to 2.09% Wednesday, but it's still up from 1.67% at the end of April.

While not enough to derail the housing market rebound, with prices up 12.1% year-over-year in April, CoreLogic says, the sharp increase in rates could begin to "weigh on home price appreciation," says Michelle Meyer, Bank of America senior economist.

That's because higher interest rates make homes less affordable. That could be especially an issue in markets where home prices are high, such as in parts of California, Zillow economist Stan Humphries says.

Interest rates tailored for bigger loans, those with balances of more than $417,500, also moved up last week, hitting 4.2%, the MBA says.

Even with higher rates, owning a home is still far cheaper than renting, given home prices and rental costs, Kolko says.

As of March, the cost of owning would have been 39% cheaper than renting with rates at 4.5% and 33% cheaper with rates at 5.5%, Trulia says.

Freddie Mac releases its weekly mortgage survey today.




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Source: Copyright USA TODAY 2013