| Mortgage rates rise,
near a 4-year high
Mixed news on inflation drove the 30-year, fixed-rate
mortgage to its highest rate in almost four years. Short-term adjustable-rate
loans got a bit of relief.
The benchmark 30-year fixed-rate mortgage rose 6
basis points to 6.73 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 5.78 percent; four weeks ago, it was 6.57 percent.
The 15-year fixed-rate mortgage rose 3 basis points
to 6.33 percent. The 5/1 adjustable-rate mortgage fell 2 basis points
to 6.33 percent.
The last time the 30-year fixed-rate mortgage had
a higher rate was June 12, 2002, when it was 6.74 percent. The week
after that, it fell to 6.6 percent and remained below that mark
for 200 weeks. It looks like those days are gone.
Inflation fears drive up long-term
Fears of accelerating inflation drove up long-term mortgage rates
this week. On Tuesday the Labor Department released the producer
price index, which measures wholesale inflation, and on Wednesday
the department released the Consumer Price Index, which measures
retail inflation. These reports packed a lot of information, but
the bond and mortgage markets focused most of their attention on
core retail prices -- that is, prices for all goods and services
except food and energy. The numbers aren't reassuring.
Core retail prices in April rose 0.3 percent, a bit
higher than expected. In the 12 months ending in April, core consumer
prices rose 2.3 percent. A number over 2 percent sets the bond market's
For mortgage shoppers, the bad news didn't stop there.
While core consumer prices for the last 12 months went up 2.3 percent,
they rose at a 3.2-percent annual rate from February through April.
That's a sign that inflation is speeding up rather than slowing
down. The Federal Reserve has been raising short-term interest rates
for almost two years in an effort to keep inflation contained.
Fluke or trend?
That sounds kind of bad, but Michael Carliner, chief economist
for the National Association of Home Builders, isn't freaking out
"I wouldn't base it on one month," says
Carliner, who is a strong advocate for the position that a single
event doesn't make a trend. "If we continue to see prices rise,
I think this is outside the Fed's comfort zone. If this is not a
single-month spike -- a fluke -- then I think they're going to keep
raising rates, and that also the long-term market is going to be
influenced by it as well."
That's a lot of ifs. Carliner isn't convinced that
inflation will continue to gather strength. It takes months for
the Fed's rate increases to completely register, and that means
the last few Fed rate hikes haven't been fully felt yet.
Home sales have been cooling lately, and Carliner
expects that slowdown to continue because of this year's rise in
short-term rates. Bankrate.com's benchmark 30-year fixed has risen
about half a point since the beginning of the year.
The drop-off in sales will be more evident among
high-end buyers than first-time buyers, Carliner says. He draws
a picture of a hypothetical homeowner who refinanced a mortgage
last year at 5.5 percent. In such a case, "where you might
have otherwise considered trading up, you're going to stay put."
First-time buyers, on the other hand, might just
set their sights a bit lower. Mindful of their monthly payments,
they'll react to higher mortgage rates by buying less-expensive
houses than they originally planned to buy.