U.S. mortgage rates fell, reducing borrowing costs for homebuyers after the 30-year average jumped to a two-year high last week.
The average rate for a 30-year fixed mortgage dropped to 4.37 percent in the week ended today from 4.51 percent, which was the highest since July 2011, McLean, Virginia-based Freddie Mac said in a statement. The average 15-year rate slipped to 3.41 percent from 3.53 percent.
Rates are adjusting after spiking over expectations that the Federal Reserve will scale back bond purchases as the economy returns to health. While the 30-year average has climbed from a near-record low of 3.35 percent in early May, the higher rates probably won’t slow the U.S. housing rebound, according to Frank Nothaft, chief economist at Freddie Mac.
“We won’t know the immediate impact on the pop in mortgage rates for another couple months,” he said in a July 16 report. “We don’t expect them to stall the housing recovery because demand is strong, supply is limited and housing affordability remains strong in most markets for most families.”
The 30-year rate will rise gradually, ending the year at about 4.6 percent to 4.7 percent, Nothaft said. That’s below the average of about 5.3 percent for the past 10 years, according to data compiled by Bloomberg.
In a sign that higher mortgage rates are having a limited effect on the market, homebuilder confidence rose in July to the highest level since January 2006, a National Association of Home Builders/Wells Fargo index showed two days ago.
Starts of U.S. homes unexpectedly fell last month to the lowest level in more than a year, the Commerce Department reported yesterday. The decline reflects a slump in multifamily projects, which are “characteristically volatile,” rather than renewed weakness in housing, Paul Diggle, property economist at Capital Economics Ltd. in London, said in a research note after the data were released.
While homebuying demand remains strong, higher loan costs may be slowing refinancing. The Mortgage Bankers Association’s index of refinancing applications dropped 4.2 percent last week to the lowest level since July 2011. The purchase gauge rose 0.5 percent, the Washington-based trade group said yesterday.
Freddie Mac’s weekly data is mostly collected from Monday to Wednesday. It largely doesn’t reflect a drop in Treasury yields after Fed Chairman Ben S. Bernanke yesterday signaled no imminent exit from the central bank’s stimulus program.
“Housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates,” Bernanke told the House Financial Services Committee. “But it will be important to monitor developments in this sector carefully.”