Mortgage rates slowly creep up

WASHINGTON -- Rates on benchmark 30-year mortgages climbed this week to the highest level seen in a year, something that is chilling -- but not freezing -- refinancing activity.

The average rate on 30-year fixed-rate mortgage for the week ending Aug. 8 was 6.34 percent, up sharply from last week's rate of 6.14 percent, Freddie Mac, the mortgage giant, reported Thursday in its weekly nationwide survey.

This week's rate marked the highest since the week ending Aug. 2, 2002, when rates on 30-year mortgages averaged 6.43 percent.

The recent upward swing in mortgage rates marks a turnaround from the middle of June, when rates on 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades.

Several factors have contributed to rising mortgage rates, economists said. They include: signs that the economy is gaining traction; concern about swelling federal budget deficits; and disappointment on Wall Street that the Federal Reserve didn't make a bolder cut to short-term rates on June 25. Those factors have pushed bond rates up, causing long-term mortgage rates to rise.

Rising pressure

"Signs that the economy is finally improving have generated upward pressure on fixed-rate mortgage rates over these past few weeks," said Freddie Mac's chief economist Frank Nothaft.

For 15-year fixed-rate mortgages, a popular option for refinancing, rates jumped to 5.66 percent this week, up from 5.44 percent last week. This week's rate was the highest since the week ending Oct. 25, 2002, when 15-year mortgages averaged 5.70 percent.

Rates for one-year adjustable mortgages rose this week to 3.80 percent, up from 3.68 percent last week.

The recent rise in mortgage rates is slowing home-mortgage refinancing activity, which had been on a red-hot roll before the upward swing in rates.

Applications for new financing deals edged down by 2.4 percent last week from the previous week, the Mortgage Bankers Association of America reported.

"The relatively modest drop in refinancing activity despite a rather sharp increase in interest rates indicates some borrowers decided this might be their last chance to refinance before rates went up further," said Jay Brinkmann, the association's vice president of research and economics.

Refinancing

Refinancing has played an important factor underpinning consumer spending, a main force keeping the economy going. Economists are hopeful that fatter paychecks and other incentives coming from President Bush's third tax cut will move in to support spending as refinancing cools.

Economists said rising mortgage rates also probably will dim the vibrant housing market a bit, but they still expect sales to remain healthy.

"Home sales in the second half of this year won't be as robust, but we'll still see an annual record," said David Lereah, chief economist at the National Association of Realtors.

Lereah is forecasting existing-home sales to total 5.65 million and new-home sales to come to 992,000 units in 2003. Both would mark all-time highs.

This week's mortgage rates do not include add-on fees known as points. Each loan type carried an average fee of 0.7 point.

A year ago, rates on 30-year mortgages averaged 6.31 percent, 15-year mortgages were 5.69 percent and one-year adjustable mortgages stood at 4.37 percent.

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On the Net:

Freddie Mac: http://www.freddiemac.com