Experts: Say So Long To Mortgage Rates In The 3's For Now

(MCT)—The era of the 30-year home mortgage rate in the 3's suddenly appears to be over. In less than a month, the popular loan option for financing a home purchase has surged by more than a full percentage point. The increase was capped by an eye-catching, quarter-point increase on Friday, mortgage lenders said. Some lenders were quoting 30-year rates as high as 4.87 percent Friday, compared with 3.65 percent at the beginning of June. "The market has been so stable for the past two years," says Kim Neilson, executive vice president at McCue Mortgage in New Britain. "We haven't experienced this type of jump in years." The average rate on a 30-year, fixed mortgage fell to a low of 3.3 percent in early May, according to mortgage giant Freddie Mac. Neilson said she would be "highly surprised" if the 30-year, fixed-rate home loans dipped below 4 percent again this year. But Neilson expects rates to remain between 4 percent and 5 percent at least through the end of the year. Rising rates, spurred on by a strengthening economy and federal monetary policy, come as the fragile housing market in Connecticut is starting to show the first signs of recovery. In May, sales of single-family houses and the corresponding median sale price — where half the sales are above and half below — both rose for the first time since January. The sales were the highest recorded for the month since 2010, especially notable because sales in 2010 were boosted by a federal home buyer tax credit. The sudden jump could temporarily stall recovery, mortgage lenders say, as borrowers wrestle with the implications of higher rates. "When something goes up that much, it is too much, too soon," said Michael Menatian, president of Sanborn Mortgage in West Hartford. "It's like sticker shock." The difference between 3.6 percent and 4.8 percent on a $200,000 mortgage amounts to $140 a month, an increase from $909 to $1,049. (The payment represents principal and interest but doesn't include escrow for real estate taxes or homeowner insurance.) Higher rates have already cut into refinancing, and borrowers with adjustable-rate mortgages also will feel the pinch, experts say. Home builders in Connecticut say they are watching the rate increases closely, as new home construction in the state begins to reverse a multiyear slump. Permits for new single-family houses, condominiums and apartment units are up 14 percent through the first five months of this year, compared with the same period last year. "It's always a concern when rates go up," said Joanne Carroll, a spokeswoman for the Home Builders Association of Connecticut. "For every percentage point or part of a percentage point, you have the possibility of disqualifying people who are on the edge, like first-time home buyers." But Carroll said that home builders do not believe they would be dealt a serious setback unless 30-year rates rise above 6 percent. Carroll said that rising mortgage rates could actually spur more activity as buyers who have delayed are nudged into the market before rates potentially climb higher. Official surveys of mortgage rates won't be released until later this week, so it's unclear to what extent Friday's jump will figure into the averages. Robert Bischoff, publisher of the Connecticut Bank Rate Recap in Clinton, said he is expecting a significant increase over last week. "But these rates shouldn't deter house hunters," Bischoff said. "They're still fabulous, just not the bargain basement of the past two years." Thirty-year rates between 4 percent and 5 percent are still below the 6 percent, even 7 percent, that were once considered rates to jump on, Neilson and others said. The surge in the past month, experts say, has two primary causes. First, Federal Reserve Chairman Ben Bernanke said in mid-June that the Fed might slow its purchase of mortgage-backed bonds, a strategy aimed at helping boost the housing market. The Fed's purchase of billions of dollars in bonds has ensured that there is a secondary market for lenders to bundle and sell mortgages, keeping interest rates low. Second, an improving economy is pushing mortgage rates higher. Home loan rates move in lock step with the yield on 10-year U.S. treasuries. Last Friday, the yield rose nearly a quarter of a percentage point, to 2.74 percent. That was the biggest jump since August 2011. The yield, or investment return, rises in a strengthening economy because the government must offer a higher return to attract investors who might want to move money to something potentially more profitable, such as the stock market. Friday's uptick in the yield came after the federal government reported that the nation's employers added 195,000 jobs, well above the 165,000 expected by analysts. The nation's jobless rate remained at 7.6 percent as more jobless workers entered the labor force and offset the increase in employment. That might be a sign that more people are optimistic about getting a job. There is one upside to rising rates: Dismally low rates on savings accounts and certificates of deposit also could rise. "If this is going to stick, we should see other rates go up as well," Neilson said. ©2013 The Hartford Courant (Hartford, Conn.) Distributed by MCT Information Services

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