U.S. Mortgage Rates Rise for Second Consecutive Week (Update2)

Oct. 22 (Bloomberg) -- Mortgage rates for 30-year fixed U.S. home loans rose for a second consecutive week, making borrowing more expensive and threatening signs of stabilization in the housing market.

The average 30-year rate climbed to 5 percent from 4.92 percent last week. The 15-year rate increased to 4.43 percent from 4.37 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement.

Rising borrowing costs reduced mortgage applications last week. The Mortgage Bankers Association’s index of applications to purchase a home or refinance fell 14 percent and homebuilders broke ground on fewer homes than anticipated in September. A government tax credit for first-time homebuyers is set to expire at the end of November.

“It’s going to be a long road to recovery,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “It’s going to be pretty gradual.”

The Federal Reserve set out last year to encourage lower mortgage rates by pledging to buy bonds backed by home loans. It increased the size of the program to $1.25 trillion in March.

The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit. The plan helped drive mortgage rates to a record low of 4.78 percent twice in April.

The central bank plans to slow the pace of buying. The purchasing program is scheduled to end in the first quarter next year, the Federal Open Market Committee said in a statement Sept. 23.

Mortgage applications for homes fell 7.6 percent in the week ended Oct. 16 and refinancings decreased 17 percent, according to the Mortgage Bankers Association.

Housing starts rose 0.5 percent to an annual rate of 590,000 in August. That was lower than previously estimated, figures from the Commerce Department showed yesterday. Permits, a sign of future construction, fell for the second time in the past three months.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.

To contact the editor responsible for this story: Alan Mirabella at amirabella@bloomberg.net.