Freddie Mac: Mortgage Interest Rates Highest Since July 2011

Thirty-year fixed mortgage rates climbed 0.22 percentage points this week to reach an average of 4.51%, the highest since July 2011 when they averaged 3.56%, according to Freddie Mac's Primary Mortgage Market Survey.

The average rate for a 15-year fixed mortgage hit 3.53%, up 0.14 percentage points, according to the government-sponsored enterprise.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 3.26%, up about 0.7 points, or 3.10%, from the week prior. A year ago, five-year ARMs averaged 2.74%.

One-year Treasury-indexed ARMs averaged 2.66%, which is flat compared to last week. At this time last year, the one-year ARM averaged 2.69%, the report states.

This is the third week in a row that mortgage rates have climbed, a trend that began after the Federal Reserve announced on June 19 that it might begin tapering its $85 billion-a-month bond-buying program starting in the fourth quarter of this year, providing unemployment reaches 7% and in consideration of other economic data.

This week's rate increase, however, was more due to the economy than the Fed's recent statements.

‘June's strong employment led to more market speculation that the Federal Reserve will reduce future bond purchases, causing bond yields to rise and mortgage rates followed,’ said Frank Nothaft, vice president and chief economist for Freddie Mac, in a statement.

‘The economy gained 195,000 jobs in June, above the market consensus forecast, while revisions to the prior two months added 70,000 on top of that. Moreover, hourly wages rose by 2.2 percent over the last 12 months and represented the largest annual increase in nearly two years.’

There are varying opinions within the industry as to whether the recent rate increases are a threat to the housing recovery. Last week, the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending June 28 showed that mortgage application volume decreased 11.7%, seasonally adjusted, from the week prior – a trend that the MBA attributed to the Fed's recent statements on tapering.

There was also a sharp drop-off in refinancing. The report's Refinance Index decreased 16% from the previous week to reach its lowest level since July 2011.

‘At these rates, many fewer homeowners have an incentive to refinance,’ said Mike Fratantoni, vice president of research and economics for the MBA, in a statement.

What's more, a recent survey conducted by Trulia found that 41% of consumers were worried about mortgage rate increases.

Still, rates are far lower than they were prior to the economic crisis.

"Increases in rates would not be occurring if there wasn't economic growth,’ Steve Blitz, chief economist at ITG Investment Research, told Forbes in a report this week. "If people thought the economy was heading south, even with absence of quantitative easing, the rates wouldn't rise."

In a recent report on CNBC's ‘Squawk Box,’ Ara Hovnanian, CEO of home builder Hovnanian Enterprises, said although rates are now trending above 4.4%, they could continue to rise without severely impacting housing starts.

To download a copy of the report, click here.


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