Mortgage rates rise for fourth week

Mortgage rates increase to 4.61 percent for a 30-year loan, up dramatically from the historic low of 4.17 percent set a month ago.

Larry Downing/Reuters/File
A "Price Reduced" sign is displayed on a home for sale in Vienna, Va., outside Washington, Oct. 27, 2010. Mortgage rates have been rising for four weeks straight. Will they slow any recovery in housing?

Rates on fixed mortgages rose for the fourth straight week this week. The surge could slow refinancings and further hamper the housing market.

Freddie Mac said Thursday that the average rates on 15- and 30-year fixed loans increased sharply from last week. Mortgage rates tend to track the yields on 10-year Treasury bonds. Those yields have been rising as investors anticipate Congress will extend the Bush-era tax cuts for two years and long-term unemployment benefits for 13 months.

The 30-year rate rose to 4.61 percent from 4.46 percent last week. That is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971.

The average rate on a 15-year fixed loan, a popular refinance option, rose to 3.96 percent. Rates hit 3.57 percent last month — the lowest level since 1991.

Rates are rising after plummeting for seven months. Investors are selling Treasury bonds in anticipation of the tax deal President Barack Obama and Republicans forged that could boost the economy next year if passed. A stronger economy would make the stock market a more attractive place to invest money. That's a big reason why many investors are selling their safer Treasurys bonds.

The sell-off is adding more Treasury bonds to market, which depresses prices and raises yields. Prices and yields move in opposite directions.

Rising mortgage rates are chilling the market for refinancing, especially among those who were seeing ratesfall a few weeks ago and thought they might get a better deal. Refinance activity fell for the fourth straight week last week, according to the Mortgage Bankers Association.

"Our business has been cut by 30 percent in four weeks," said Michael Moskowitz, president of Equity Now, a direct mortgage lender in New York.

Low mortgage rates did little to boost the struggling housing market. However, the increase in rates may have convinced some homebuyers who were waffling to go ahead and make a move. Applications for home purchases rose for the third consecutive week and are at their highest point since the beginning of May.Mortgage brokers and real estate agents agree that a sustained rise in mortgage rates eventually will sideline potential buyers who started to think of historically low rates as a given.

"It's all about negative psychology," said Julie Longtin, a real estate agent with RE/MAX Cityside in Providence, R.I. "Already my buyers are thinking about withdrawing until rates dip again."

That would weigh on home prices, which have started to fall again. The ranks of homeowners who owe more than their homes are worth would grow and more won't be able to refinance to shore up their finances. Americans, feeling less wealthy, could hunker down again and curb their spending. That would slow economic growth.

"If rates stay south of 5 percent, I don't think we go back into a tailspin," said Mark Zandi, chief economist at Moody's Analytics. "Above 5 percent, it gets dicey for housing and the economy."

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

Rates on five-year adjustable-rate mortgages averaged 3.60 percent, up from 3.49 percent. The five-year hit 3.25 percent last month, the lowest rate on records dating back to January 2005.

Rates on one-year adjustable-rate home loans slipped to 3.27 percent from 3.25 percent.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount.

The average fee for 30-year and 15-year mortgages in Freddie Mac's survey was 0.7 point. It was 0.6 point for five-year and one-year mortgages.

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