Breaking through 6%

Thirty-year mortgage hits highest level in eight months

By Steve Kerch, MarketWatch
Last Update: 11:39 AM ET March 24, 2005

CHICAGO (MarketWatch) -- The 30-year mortgage topped 6 percent this week, the first time that the U.S. benchmark has been above this level in eight months, Freddie Mac said Thursday.

The mortgage agency said the national average interest rate on a 30-year loan was 6.01 percent in the week ending Thursday, up from 5.95 percent a week earlier. The last time the loan averaged more than 6 percent was July 24, 2004, when it stood at 6.08 percent.

The jump, which comes two days after the Federal Reserve raised interest rates for a seventh straight time, was the sixth in a row for fixed-rate mortgages as tracked by Freddie Mac (FRE) in its weekly survey.

Many economists have been surprised that long-term rates such as mortgages have remained as low as they have in light of the tightening moves adopted by the Federal Open Market Committee.

"Renewed concern over the threat of inflation pushed up long-term mortgage rates, while the most recent FOMC statement caused short-term rates to float upwards," said Frank Nothaft, Freddie Mac chief economist. "Although mortgage rates have risen these past six weeks, they still remain at very affordable levels."

This, he added, "would explain why new home sales figures were surprisingly high in February. Although mortgage rates are beginning to rise, we have yet to experience much of a slowdown in the housing market."

Indeed, the latest numbers on home sales confirm the contention that rising mortgage rates have not taken a toll on the nation's housing market. Sales of existing homes were robust in February, and sales of new homes ranked as the second-best on record, data this week showed. See story on existing-home sales. See story on new-home sales.

Although home sales have held up well, mortgage refinancing by the same token has taken a big hit. Refinance activity is down 60 percent from year-ago levels, the Mortgage Bankers Association said this week.

In the Freddie Mac survey, the national average for the 15-year loan, a popular choice among those refinancing mortgages, was 5.56 percent, up from 5.47 percent a week earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.35 percent, up from 5.31 percent. And one-year Treasury-indexed ARMs averaged 4.24 percent, up from last week when the average rate stood at 4.20 percent.

The two fixed-rate loans and the hybrid ARM required the payment of an average 0.7 points to achieve the rate; the one-year ARM needed 0.8 points. A point is 1 percent of the loan amount, charged as prepaid interest.

Rates are now significantly above their year-ago levels, when the 30-year averaged 5.4 percent, the 15-year was at 4.7 percent and the one-year ARM's rate was 3.36 percent. Freddie Mac only started tracking the hybrid ARM this year.

But economists don't anticipate mortgage rates will rise all that significantly from here, predicting the 30-year loan will end 2005 somewhere between 6.25 percent and 6.5 percent.

Steve Kerch is the real estate editor of MarketWatch in Chicago.