Rates remain above 6 percent for second week

The 30-year fixed mortgage rate is above 6 percent for the second week in a row.

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 6.1 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 0.40 discount and origination points. One year ago, the mortgage index was 5.75 percent, and four weeks ago it was 5.84 percent.

The benchmark 15-year fixed-rate mortgage rose 2 basis points to 5.69 percent. The benchmark 5/1 adjustable-rate mortgage rose 5 basis points to 5.74 percent.

The last time mortgage rates were this high, baseball teams were starting the regular season. The 30-year fixed hovered at 6 percent or above for four weeks in March and April, then dropped below that threshold for six months. Those happy days have ended, at least temporarily, as the 30-year has climbed back above 6 percent and stayed there -- thanks, in part, to the Federal Reserve.

Maybe the Fed finally has succeeded in jawboning long-term rates higher. Chairman Alan Greenspan has made no secret of his desire for higher rates, because he worries that inflation will break out otherwise. But the Fed has little control over long-term rates, which are set by bond markets. For months, the Fed raised short-term rates while Greenspan and company impotently wondered why long-term rates weren't going up, too.

Then Greenspan trimmed the word "well" out of the Fed's explanation of its most recent rate increase. That, and the increases in oil and natural gas prices, plus a not-as-bad-as-feared employment report, seem to have accomplished the task of raising long-term rates.

When the Fed raised the federal funds rate by a quarter of a percentage point on Sept. 20, the central bank explained that inflation was "contained." During the previous few meetings, the Fed had said that inflation had been "well contained." Up went interest rates, including those on mortgages.

Then came last week's employment report for September, which said that the nation's economy had shed a net 35,000 jobs during the month. Economists had expected Hurricane Katrina to have knocked out 150,000 jobs. The loss of jobs, while bad news, wasn't as bad as it could have been, so it was sort of good news. It kept mortgage rates from falling.

This week, the Fed's rate-setting committee released the minutes from its Sept. 20 meeting, in which it "revised upward its forecast of overall inflation for 2005 and of core inflation for 2006, reflecting the effects of higher energy prices, but lowered its projection for overall inflation slightly for 2006."

Investors already had come to a similar conclusion, but the Fed reinforced it, and long-term rates rose some more, enough to make for this week's difference in the 30-year mortgage rate.

"Inflation has been rising for over two years now, but the realization of that increase and its sustainability has only recently begun to enter the market," Wachovia's economists said in a note to investors. They predict that long-term rates will rise by maybe an eighth of a percentage point the rest of the year.

Mortgage giant Freddie Mac's chief economist, Frank Nothaft, expects rates to rise gradually over the next year. He thinks the 30-year fixed will be around 6 percent at the end of 2005 and around 6.4 percent at the end of 2006. That implies that he expects rates to decline or remain steady in the short term, but rise in the long run.

If rates keep rising, borrowers will look back fondly upon the third quarter of 2005. From the beginning of July through the end of September, the 30-year fixed rate averaged 5.84 percent. It's more than a quarter of a percentage point higher now.