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Thursday, June 27, 2013

Mortgage Rates Make Biggest Jump in 26 Years

The average rate for a 30-year mortgage soared half a percentage point in the last week, the biggest one-week leap since 1987.

The rate went from 3.93% to 4.46%, the highest rate since July 2011. This is the first time the rate has gone above 4% since March 2012.

Most analysts don’t expect higher interest rates to hurt the housing recovery, though they do believe rising rates will help tamp down home-price increases.

Higher mortgage rates are "not going to snuff out the housing recovery," Paul Diggle, property economist for Capital Economics, told Bloomberg. "But it’s another reason to expect a slowdown from the very rapid rate of price rises of late."
His firm, which had been predicting that mortgage rates would be 3.75% next year, upped its prediction to 5% -- still lower than rates were during the real estate boom, Bloomberg reported.

The rate for a 15-year mortgage rose from 3.04% to 3.5%, according to Freddie Mac’s Weekly Primary Mortgage Market Survey.

The impetus for the rise in rates appears to the Fed’s indication that it will cut back on bond purchases.

While higher interest rates means higher house payments, rates still remain at historic lows. The rate would have to rise to nearly 7% before a home priced at the U.S. median would be unaffordable to a family making the median income, according to Freddie Mac’s June 2013 U.S. Economic & Housing Market Outlook. However, rising rates will affect affordability in some areas long before they hit 7%.

"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,” Frank Nothaft, vice president and chief economist at Freddie Mac, said in a statement.

The 30-year mortgage rate was 7.33% when Freddie Mac began its weekly survey in April 1971. Rates reached 18.63% in 1981. During the mid-2000s real estate boom, mortgages rates were in the 5% to 6%-plus range. The rate first dipped below 5% in January 2009.

Source: MSN

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