30-year mortgage rises to 6.08%

First increase in 6 weeks

ARMs, 15-year rate also up

August 01, 2004|By BLOOMBERG NEWS

The average rate on a benchmark 30-year fixed mortgage rose last week to 6.08 percent in the United States, the first increase in six weeks, according to Freddie Mac.

The 30-year rate was 5.98 percent the previous week and 5.94 percent a year earlier, according to Freddie Mac, the second-biggest purchaser of U.S. home loans. The rate is the highest since 6.21 percent in the week that ended July 2.

Since peaking at a high for this year of 6.34 percent the week of May 13, 30-year mortgage rates had fallen five consecutive weeks, reflecting in part a slowdown in economic activity. The economy hit what Federal Reserve Chairman Alan Greenspan described in congressional testimony last month as a "soft patch" in June.

Mortgage rates move with yields on U.S. Treasury notes, which rose last week after a report showed consumer confidence rose to a two-year high in July. The confidence data fueled speculation the Federal Reserve will boost its benchmark interest rate again this year to stem inflation. Earlier reports suggesting economic growth cooled in June had assuaged price concerns, causing rates to fall.

"Inflation seems to be under control, but if the economy should heat up too rapidly, the Fed would have to act quickly," said Frank Nothaft, Freddie Mac's chief economist.

The one-year adjustable-rate mortgage (ARM) rose to 4.17 percent from 4.12 percent, Freddie Mac said. The 15-year fixed rate increased to 5.49 percent from 5.39 percent.

More jobs

Even with the rise in 30-year mortgage rates, borrowing costs are still less than a percentage point above the all-time low 5.21 reached in June last year.

Low rates and an improving labor market that gives consumer the wherewithal to purchase homes are helping homebuilders such as Pulte Homes Inc. in Bloomfield Hills, Mich., and Centex Corp. of Dallas, which last week raised their full-year earnings forecasts after stronger demand for houses lifted profits in the three months through June.

Richard J. Dugas Jr., Pulte Homes chief executive, said last month that interest rates would have to rise at least 3 percentage points for the fourth-largest U.S. homebuilder to be affected.

Builders probably will sell 1.17 million houses in 2004, a gain of 7.4 percent from last year's all-time high, according to the National Association of Home Builders.

A record June

U.S. sales of previously owned homes unexpectedly rose to a record annual pace in June, a report Monday from the National Association of Realtors in Washington showed. The median sales price of $191,800 was the highest ever.

New-home sales fell less than forecast to a 1.326 million annual rate in June, the second-highest pace on record, said a government report Tuesday.

Federal Reserve policy-makers raised the benchmark overnight bank lending rate a quarter point to 1.25 percent June 30.

The Associated Press contributed to this article.

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