Freddie Mac: Spike In Interest Rates Won’t Slow Recovery

Fixed mortgage rates shot up from 3.93% last week to 4.46% this week, the largest weekly increase since 1987, according to Freddie Mac's Primary Mortgage Market Survey.

Rates reached their highest level since July 2011, but that will not slow the recovery because rates and home prices are still at record lows by comparison to ‘pre-crisis’ levels, the company said.

The sharp increase was due mainly to the Federal Reserve's announcement last week that it would begin tapering its bond purchases in the fourth quarter and phase out its stimulus program by the middle of 2014.

Despite the rapid increase, home buyer affordability remains strong for the typical family in most parts of the country, Freddie Mac said in the weekly report.

The 15-year fixed-rate mortgage (FRM) rose to an average of 3.50%, an increase of 0.8 points from last week when it averaged 3.04%. A year ago at this time, the 15-year FRM averaged 2.94%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.08%, up about 0.7 points from last week when it averaged 2.79%. A year ago, the 5-year ARM averaged 2.79%.

The one-year Treasury-indexed ARM averaged 2.66%, about 0.5 points up from last week when it averaged 2.57%. At this time last year, the one-year ARM averaged 2.74%.

‘Higher mortgage rates may dampen some housing market activity but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,’ said Frank Nothaft, vice president and chief economist of Freddie Mac, in a statement. ‘For instance, existing-home sales in May rose to its strongest pace since November 2009, and new home sales were the most seen since July 2008.’

Nothaft also noted that the year-over-year growth in the S&P/Case-Shiller 20-city Home Price Index for April of 12.1% was the largest since April 2006.


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