Strengthening economy boosts 30-year mortgage rates

March 13, 2005

BY MARTIN CRUTSINGER
ASSOCIATED PRESS

Rates on 30-year mortgage rates hit the highest level in seven months, reflecting four straight weeks of rising rates, a national mortgage survey reported.

Freddie Mac, the mortgage company, said its weekly survey showed that rates on 30-year, fixed rate mortgages averaged 5.85 percent last week, up from 5.79 percent the previous week.

It was the fourth consecutive weekly increase after 30-year mortgages had fallen for six straight weeks, hitting a low for this year of 5.57 percent the week of Feb. 10. Rates now stand at the highest level since the 30-year mortgage averaged the same 5.85 percent the week ending Aug. 12.

Analysts said that last week's good news on employment, showing that the economy created more than a quarter-million jobs in February raised worries in financial markets about possible future inflation caused by stronger-than-expected economic growth.

"Last Friday's employment report reinforced the perception that the economy is on sure footing, leading bond markets to push interest rates higher again this week," Freddie Mac economist Amy Crews Cutts said Thursday. "Although inflation remains tame, the recent spike in oil prices does put inflationary pressures on the economy and was an additional factor causing higher interest rates."

Still, analysts said mortgage rates should rise only gradually this year if the Federal Reserve keeps to its current course of gradual quarter-point increases in short-term rates.

Freddie Mac is forecasting that the 30-year mortgage will be around 6.25 percent at the end of the year.

Sales of both new and existing homes set records for four straight years, but analysts are predicting a slight fall-off in the sales pace this year as mortgage rates continue rising.

Other mortgage rates were up as well last week, Freddie Mac reported.

Rates on 15-year, fixed-rate mortgages, a popular option for refinancing, rose to 5.38 percent last week, up from 5.33 percent the previous week. Rates on one-year adjustable-rate mortgages climbed to 4.24 percent last week, compared to 4.14 percent the previous week.

Five-year hybrid adjustable rate mortgages averaged 5.22 percent last week, up from 5.17 percent the previous week. These hybrid mortgages have a fixed rate for five years and then adjust each year after that.

The nationwide averages for mortgage rates do not include add-on fees known as points. The 30-year mortgage, 15-year and five-year ARM all carried a fee of 0.6 point. The one-year ARM had a financing fee of 0.7 point.

A year ago, 30-year mortgages averaged 5.41 percent while the 15-year mortgage was at 4.69 percent and the one-year ARM was at 3.41 percent. Freddie Mac does not have historical data yet on the five-year ARM.

For more information, go to the Freddie Mac Web site, www.freddiemac.com