Highest mortgage rate since July 29, 2011

Below is an excerpt from of our latest Market Trends newsletter, Keith Gumbinger’s weekly examination of the economic conditions that influenced mortgage rates. Sign up to receive the Market Trends in your inbox Friday evening.

PercentFor those with doubts that a rise of better than a percentage point for 30-year fixed-rate mortgages in 2013 would have much impact on home sales, we are starting to see the earliest evidence of the damage, and frankly, it’s a little worrisome.

That mortgage and other interest rates have continued to firm up of late should also raise some concern, as headlines of “Mortgage rates rise to two-year highs” do nothing to encourage potential homebuyers to keep the nascent recovery in housing moving forward. Yes, markets will ultimately adjust to whatever conditions exist, higher interest rates and higher prices among them, but a process of adjustment takes time, and we may be heading for a slow and stumbly period as we conform to the new realities of the market.

Mortgage rates at yearly highs

  • HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator—found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) rose by 16 basis points (0.16 percent) to 4.75 percent, the highest rate seen since the week ending July 29, 2011.
  • The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) spiked by 15 basis points (0.15 percent), landing at 3.80 percent for the week.
  • Popular FHA-backed 30-year fixed-rate mortgages put in an 11 basis point rise of their own, climbing to 4.36 percent.
  • The overall 5/1 Hybrid ARM moved by a more-subdued one-tenth of one percentage point to 3.42 percent for the week.

How important are rock-bottom mortgage rates?

How important have rock-bottom mortgage rates been to the economy? It is hard to underestimate their value as an economic kick-starter.

Refinancing: We know that refinancing of higher-rate mortgages has freed up billions in household dollars for spending on things like cars, not to mention allowing the retirement of other higher-cost debts which cause fiscal drag.

Household balance sheets have been measurably improved by the refinancing process, which has now come to a standstill, so the ability of more households to strongly benefit from refinancing their mortgages as incomes and employment finally recover has been greatly diminished.

Home buying: We also know that demand for homes, driven by multi-generational lows for rates has helped revive home sales from recession levels and served to allow home prices to rise appreciably over the last year.

This in turn helped some resolve a portion of the housing market’s underwater mortgage trouble, served to encourage homebuilders to start engaging the economy again, and even helped to put Fannie and Freddie back in the black, as new performing mortgages replaced old non-performing ones.

The week ahead…

We seem poised to close August with some of the highest mortgage rates in years.

If we are lucky, the light calendar of data and the impending holiday weekend will mostly keep mortgage rates where they are or thereabouts this week. Even with the improvement in rates on Friday, we have at best trimmed the top off last week’s rise, which saw us approach 4.75 for a conforming 30-year fixed-rate mortgage late in the week. That said, we may be optimistic given the still-unsettled state of the market, but we think we have a chance for little to no change in average rates this week.

HSH Associates Financial News Blog

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