U.S. Mortgage Rates for 30-Year Loans Rise to 2-Year High

U.S. mortgage rates for 30-year loans rose to a two-year high, increasing borrowing costs amid signs of an improving job market.

The average rate for a 30-year fixed mortgage climbed to 4.51 percent, the highest since July 2011, from 4.29 percent last week, McLean, Virginia-based Freddie Mac said in a statement today. The average 15-year rate increased to 3.53 percent from 3.39 percent.

The 30-year rate, which climbed from a near-record low of 3.35 percent in early May, has risen on expectations that the Federal Reserve will reduce bond purchases as the economy returns to health. Improving employment is bringing more buyers into the market as competition over a tight supply of listings drives up prices. Payrolls rose by 195,000 workers in June, the Labor Department reported on July 5, exceeding the 165,000 gain projected by economists in a Bloomberg survey.

“Housing affordability has deteriorated slightly in response to the rise in mortgage interest rates, but remains considerably better than the historical average,” Paul Diggle, property economist at Capital Economics Ltd. in London, wrote in a research note yesterday. “With price gains still going strong, there are few signs that the rise in rates will derail the housing recovery.”

U.S. home prices rose 12.2 percent in May from a year earlier, the largest increase since February 2006, according to Irvine, California-based CoreLogic Inc.

Freddie Mac’s weekly data is mostly collected from Monday to Wednesday. It largely doesn’t reflect a drop in bond yields after Fed Chairman Ben S. Bernanke yesterday called for maintaining stimulus efforts.

Refinancing Decline

The 30-year rate is still well below the average of about 5.3 percent for the past 10 years, according to data compiled by Bloomberg.

While housing demand remains strong, the rising rates are slowing refinancing. The share of mortgage applicants seeking to refinance was 64 percent last week, the lowest since May 2011, the Mortgage Bankers Association said yesterday.

Lenders have had to re-evaluate borrowers pre-approved for loans a few months ago because of the higher rates, which can decrease purchasing power, Joe D’Alessio, a loan officer at HSBC Holdings Plc in New York, said yesterday in a telephone interview. Rising financing costs have yet to slow the momentum of the housing recovery, he said.

“The market hasn’t really caught up with the rates,” D’Alessio said. “There’s still very low inventory, so sellers aren’t really reducing purchase prices.”

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.