30-year mortgage rate rises to 5.95%

Recent spurt frustrates would-be homebuyers, those seeking refinancing

30-year mortgage rate increases to 5.95%

April 06, 2004|By Daniel Taylor | Daniel Taylor,SUN STAFF

Long-term mortgage rates have spiked over the past few days, leaving some prospective homebuyers and those looking to refinance fretting over higher borrowing costs.

After last week's strong jobs report, rates for benchmark 30-year mortgage rates nationwide increased to 5.95 percent yesterday. That was up from 5.74 percent Friday and 5.65 percent Thursday, according to HSH Associates, a Pompton Plains, N.J.-based mortgage watcher. The rise since Thursday would mean an extra $47.76 a month on a $250,000 loan, according to Bankrate.com.

The mortgage rate increases result from a slumping bond market and a growing assumption that the Federal Reserve will raise short-term interest rates during the coming months, experts said.

Mortgage rates have remained below 6 percent for much of the year, falling to a 45-year low of 5.21 percent in June. Extraordinarily low rates have helped push housing sales and refinancing to records during the past three years. The strong demand also has pushed up home prices by double-digit percentages in each of the past two years.

The rising mortgage rates have been unnerving for shoppers such as Heather Cathey of Perry Hall. She has been looking for a house with her fiance since January and has stepped up her effort in hopes of locking in on a lower rate.

"We are frustrated that it's gone up a little bit," Cathey said. "I think it's still low overall. But I think [rates] will probably increase some more."

Keith Gumbinger, an HSH vice president, said rates tend to rise when the economy is expanding. Friday's Labor Department report - showing the fastest job growth in four years - was further proof of the expansion, he said.

"Flares of rate increases of a quarter percentage point, or even a half point, are not uncommon," Gumbinger said. "Interest rates at 6 percent are still extraordinarily low."

Celia Chen, an economist for Economy.com in West Chester, Pa., expects long-term mortgage rates to rise to as much as 6.8 percent by the end of the year. That would still be low by historic standards, but some experts say the increases could make it too expensive for some buyers to purchase the homes they want.

Chen said her company projects a "substantial slowing" in U.S. home sales, expecting 6.1 million this year, down from 7.2 million last year.

"The job market can be volatile," Chen said. "However, other signs indicate an improving economy. And as the economy expands, mortgage rates will continue rising, which will be a negative for the single-family housing market."

The National Association of Realtors, however, expects sales to remain healthy as more people enter the work force and rates remain below 8 percent. The group expects home sales to slow slightly to 6.9 million homes, said Lawrence Yun, an economist with the group.

"We expect a surge in home sales in the next two months," Yun said. "The reason for that is many who were contemplating buying a home suddenly see rising rates, and realize this could be their last chance to catch a low interest rate."

The Realtors' group projects 30-year rates reaching 6.5 percent by the end of the year.

Joe Child, a loan officer with First Republic Mortgage in Annapolis, said the recent increases haven't affected business.

"There's usually 10 days to two weeks of market maneuvering [after a rate increase]," Child said. "The upside is, you may see sellers get a little more realistic on pricing houses.

"It's crazy, but it seems like 7 percent is the new break point [for this year]," he said. "I remember when 9 percent was the break point."

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