Shoppers hit malls; mortgage rates rise
By Holden Lewis • Bankrate.com

The benchmark 30-year fixed-rate mortgage rose 17 basis points to 6.07 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 0.38 discount and origination points. One year ago, the mortgage index was 6.25 percent.

The 15-year fixed-rate mortgage rose 18 basis points to 5.42 percent. The 1-year adjustable-rate mortgage rose 8 basis points to 4.02 percent.

"Rates have picked up in the past week, mainly because of the anticipation of consumer spending for the holidays, which is why the markets kind of took off at the end of last week and early this week," says James Mason, director of sales for home lender MortgageIT.

Treasury yields jumped on Friday and Monday, and mortgage rates followed. Then, on Tuesday and Wednesday, yields and rates hung fire. That's because retail sales reports from the after-Thanksgiving weekend were good, but not as great as some retailers had wished.

Santa, mortgage rates and you
The Christmas shopping season affects rates only indirectly, but there's a definite connection, Mason believes: "It has to do with consumer confidence. If consumers are leery about the economy, they'll spend less across all streams of it." If holiday retail sales disappoint, stock prices and bond yields would drop, and so would mortgage rates -- and the opposite could happen if retailers have a better-than-expected December.

This time of year, the pace of mortgage lending tends to fall off a bit, and that was the case during Thanksgiving week. The Mortgage Bankers Association's index of mortgage applications decreased by 11.7 percent on a seasonally adjusted basis, compared to the previous week. Applications were down 29.7 percent compared to the same week a year earlier -- an indication that the refinancing boom was in full swing a year ago, but is petering out now. Half of the mortgage applications last week were from homeowners who wanted to refinance their loans.

Home prices rise
While applications cooled, prices heated up. According to the Office of Federal Housing Enterprise Oversight, the average price for a single-family home increased 5.61 percent nationwide from the third quarter of 2002 to the third quarter of 2003. Prices rose by 1.39 percent from July through September of this year.

OFHEO oversees Fannie Mae and Freddie Mac, the mortgage finance giants. When it compiles home price data, the agency pays attention only to a large subset of mortgages. OFHEO doesn't gather the prices of homes that are bought with FHA- or VA-insured loans, nor with mortgages of more than $322,700. That amount is the "conforming limit" -- the biggest loan that Fannie and Freddie are allowed to deal with. Many homes in high-price states, such as California and New York, have loans above that limit, so the OFHEO data might underestimate the pace of appreciation in some areas.

In the 12 months ending Sept. 30, Rhode Island had the nation's fastest rate of home price appreciation, at 12.35 percent, according to the agency. Rhode Island was followed by California (9.7 percent), the District of Columbia (9.1 percent), Maryland (8.65 percent) and Florida (8.64 percent).

The slowest pace of price appreciation in the past year was in Utah (1.8 percent), Colorado (1.88 percent), Texas (2.36 percent), Indiana (2.6 percent) and North Carolina and Nebraska (2.72 percent for both).

Areas in California and Florida had the fastest price growth. Prices in Fresno, Calif., had the fastest pace over the last 12 months, at 16.05 percent. Fresno was followed by Fort Pierce-Port St. Lucie, Fla.; Redding, Calif.; Chico-Paradise, Calif., and Riverside-San Bernardino, Calif.

OFHEO director Armando Falcon Jr. says that, nationwide, the pace of appreciation is strong but has slowed a bit compared to the previous few years. "This is a continuation of the gradual and orderly return to the historic average that we've been seeing this year," he says.