Mortgage rates edge up slightly, and so do home values
By Holden Lewis • Bankrate.com

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 6.47 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 6.17 percent.

The benchmark 15-year fixed-rate mortgage was unchanged at 5.81 percent. The benchmark one-year adjustable-rate mortgage rose 3 basis points to 4.24 percent.

Rates rose just a little because there was more economic good news than bad news, but none of the news was all that great. Consumers are slightly more confident, factory managers say their outlook is improving, the Federal Reserve says things are looking up in most regions of the country and the latest jobless claims report said slightly fewer than 400,000 people filed for unemployment.

The numbers paint a fuzzy picture of a gradually improving economy in which people who have jobs are buying stuff as usual and unemployed people have difficulty finding work. It implies a lukewarm economy, with investors betting that it's slowly heating up. Their investment decisions gently push long-term rates upward.

Also moving gently upward are values of single-family, middle-class homes, according to the Office of Federal Housing Enterprise Oversight. The independent agency within the housing department regulates mortgage giants Fannie Mae and Freddie Mac. Every three months, OFHEO examines Fannie and Freddie data to measure home value changes in repeat sales and refinancing of the same properties.

These are single-family homes (not townhouses or condominiums) in which the loan amount doesn't exceed the conforming limit, which is $322,700 this year.

OFHEO says that, in the year ending June 30, average home values increased 5.56 percent nationwide. From April through June this year, home values increased 0.78 percent. That's the slowest quarterly pace since July through September of 1996.

Home value appreciation slowed even as mortgage rates hit 40-year lows. Remember, these figures reflect home values from April through June. The average rate on a 30-year mortgage bottomed out at 5.28 percent in the middle of June, and rates stayed below 6 percent during the entire three-month period. Rates on 30-year mortgages didn't exceed 6 percent until the end of July. So you can't blame rising mortgage rates on the slowed pace of home values.

Shelly Dreiman, a senior economist for OFHEO, says the "deceleration is due to the cumulative effect of increases in unemployment rates." The unemployment rate peaked at 6.4 percent in June, up from 5.8 percent a year before.

Dreiman notes that home values still are increasing faster than overall inflation, which was about 2 percent in the year ending June 30.

OFHEO's director, Armando Falcon Jr., says the slowing pace of higher home values could indicate "a gradual and orderly return to the historic average, rather than the bursting of a price bubble."

In the 12 months ending June 30, average values rose fastest in Rhode Island (up 11.81 percent), the District of Columbia (up 10.1 percent), California (up 9.44 percent), Florida (up 8.68 percent) and Maryland (up 8.49 percent). Nebraska brought up the rear; the average home value increased 2.14 percent.

The metro area with the fastest increase in home values in the 12 months ending June 30 was sunny Fort Pierce-Port St. Lucie, Fla., where the average home value increased 14.68 percent. Next were Fresno and Redding, Calif.; Newburgh, N.Y.-Pa., and Nassau-Suffolk counties on Long Island in New York. The slowest increase in home values was recorded in Springfield, Ill., at 1.19 percent for the year.