Mortgage rates edge past 6%

Average in Baltimore for 30-year loan is 6.06%

refinancings plummet

30-year mortgage rates edge above 6%

April 30, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Home mortgage interest rates edged past 6 percent yesterday for the first time this year after six weeks of steady increases.

The increases are pushing anxious buyers into a frenetic race to find homes while rates remain near historical lows, industry experts said. Rates on 30-year fixed mortgages, they say, are expected to rise to between 6.5 percent and 7 percent by the end of the year.

"People who were sitting on the sidelines thinking they had time ... saw rates go up, and they have come out of the woodwork," said Gilbert D. Marsiglia, president of the Maryland Association of Realtors. "They have accelerated the market. Mortgage loan applications have picked up. Everybody is busier."

"The rates are heading up," said Bob Kaestner, consumer real estate sales manager at Bank of America. "Six percent is extremely affordable. From a historic perspective these are wonderful rates."

Yesterday, the average rate on a 30-year mortgage rose to 6.01 percent up from 5.94 percent last week and 5.70 percent a year ago, according to Freddie Mac.

The closely watched 10-year Treasury note rate, which drives mortgage rates, shot up to 4.53 percent yesterday from 3.89 percent a month ago. In the Baltimore area, the average rate on a 30-year fixed mortgage rose to 6.06 percent, according to HSH Associates of Pompton Plains, N.J.

Rising rates are forcing many homebuyers who have been thinking about purchasing a home to rush into the market, experts said.

Diana Hirschhorn, a Realtor at Long & Foster in Bel Air, said selling has been across-the-board. Condominiums, townhouses, single-family homes and luxury houses are all moving, she said.

Hirschhorn had 15 contracts on a condominium that sold for about $120,000, 10 percent above its list price. Houses that cost $500,000 and over are selling for full price often within days of being listed, she said.

"Overall, the market is very strong, volume activity has been awesome," Hirschhorn said. "Houses are selling quickly and they are selling for top dollar."

She said rising rates are "not enough to scare people away," but are "adding more momentum to an already strong market."

Kaestner said higher interest rates have hurt the once sizzling mortgage refinance market. A year ago, during the height of the refinance boom, 75 percent of Bank of America's mortgage production in the Baltimore metropolitan area was refinancing, and 25 percent was purchase business. Now, 80 percent of the mortgage activity is purchase business and 20 percent is refinancing.

`Waited too long'

"If they have waited to refinance, they have waited too long," Kaestner said. "This is strictly a purchase market now."

Rates are drifting higher because the economy is strengthening, companies appear to be beefing up their work forces and consumers are spending.

Yesterday, the Commerce Department said gross domestic product - the measure of all goods and services produced in the United States - grew at a 4.2 percent pace from January through March. Although the rate was slower than experts projected, they said it is more evidence that the economy is returning to health.

"I think the economy will continue to hum," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.

Before the recent economic surge, a booming real estate market helped prop up a lagging economy for more than three years.

The Federal Reserve's rate-setting committee is to meet Tuesday, but Sohn doesn't expect it to touch the federal funds rate - the rate banks charge each other on overnight borrowings - which is at 1 percent. He expects the Fed to raise that rate in August at the earliest.

`Plenty of warning'

"I think the Fed is trying to give us plenty of warning," Sohn said. "To some extent that is why the bond yields have risen in anticipation" of a rate increase. "I think Federal Reserve Chairman [Alan] Greenspan will be cautious about raising the interest rate."

Mark Zandi, chief economist with Economy.com in West Chester, Pa., expects 30-year fixed-rate mortgages to be closer to 7 percent by year's end.

"Interest rates, they are headed higher," Zandi said.

Anticipated continued increases in interest rates are expected to eventually cool the real estate market as higher borrowing costs make homes less affordable.

But not now.

"Right now, the only thing that is cooling the market off is inventory," Bank of America's Kaestner said. "Homes are in such demand."

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