30-Year Mortgage Rates Top 5 %

NEW YORK — The days of the absurdly low mortgage rate are over.

The average rate for a 30-year home loan rose above 5 percent this week for the first time since last April – just as Americans are feeling more secure in their jobs and confident about the economy, and just before the big spring home-buying rush.

Freddie Mac said Thursday that the average rate was 5.05 percent, almost a full percentage point higher than in November, when it hit a 40-year low.

Economic signals suggest the recovery is gaining momentum. New claims for jobless benefits came in this week at the lowest in three years, and the unemployment rate has fallen nearly a full percentage point in two months. Americans are spending more and saving less.

The exception is the beleaguered housing market. Record foreclosures have forced home prices down, and last year was the worst for sales in more than a decade. About the only good news was that qualified buyers could get the deal of a lifetime from their lenders, if they had the means – and the stomach – for the market.

Now rates are rising, and analysts expect that will continue through the end of the year, to about 5.5 percent. The next few months are the busiest for the housing market – about one in three home sales happens in the spring.

"It doesn't help," says Greg McBride, a senior financial analyst with Bankrate.com. "Any increase in mortgage rates takes away buying power and dilutes the incentive to refinance."

Rates have been rising since the fall, mostly because of fears that higher inflation is coming. Investors have been demanding higher yields on Treasury bonds ever since the Federal Reserve announced its program to pump up the economy by spending $600 billion to buy government debt. Mortgage rates tend to track the yield on the 10-year Treasury note.

Mortgage rates are still extremely low by historical standards. Anyone who bought a house 30 years ago might remember paying 18 percent on their loan.

And many analysts say low lending rates are less likely to persuade people to buy than, say, reasonable home prices or a steady job market.

"You'll see some effect on demand, but it's really how secure people are in their jobs and how much money they feel they have relative to their homes," says Cristian deRitis, an economist specializing in housing for Moody's Analytics.

"Many of those people just won't buy a house," says Wells Fargo senior economist Mark Vitner. "They'll hold off."

Home prices are expected to fall at least 5 percent more this year. Because of the feeling that the home isn't the failsafe investment it used to be, renting is more attractive. Especially when some analysts say it could be years before prices return to their pre-recession peak.

That may be contributing to the fact that, despite record inventory levels of affordable homes in nearly half of U.S. cities, mortgage applications continue their downward slide as buyers remain on the sidelines.

"Believe it or not, what I'm seeing, and I'm working with first-time homebuyers, they are not as affected by the interest rate as they are by getting a down payment," says Julie Longtin, a real estate agent with RE/MAX Cityside in Providence, R.I. "That's what is holding them back."

On a $200,000 loan, the payment difference between today's rate and November's is less than $100 a month – hardly enough by itself to spook a buyer.

If rates continue to rise, as many predict they will, the housing market will be in for yet more trouble. "Six percent would do serious damage if it happened in a very short period of time," said Patrick Newport, U.S. economist at IHS Global Insight.

Even 6 percent would be a bargain for homebuyers historically. Rates were in double digits through most of the 1980s. It wasn't until 1991 that rates consistently stayed below 10 percent. At the peak of the credit bubble in July 2006, the 30-year fixed mortgage was 6.76 percent.

All this leaves buyers wondering: What is the new normal for interest rates?

"We're turning to a more normal mortgage rate environment, says Guy Cecala, publisher of the trade magazine Inside Mortgage Finance. "That pretty much means the 30-year in the 6 percent range. I don't think rates will be going down."

___

AP Business Writer Derek Kravitz in Washington contributed to this report.

Comments

[Ed Baker]

11:26 AM on 02/14/2011

I love the first line of this story - it shows what a pathetic excuse HP is for journalism. I'm glad these writers know the future of interest rates - because NO ONE COULD POSSIBLY KNOW. :)

I love this line - "The days of the absurdly low mortgage rate are over."

[Paulie21]

10:46 AM on 02/14/2011

I wish they would be more specific when they talk about double digits in the 1980s. The rates were not 10 %. They were 18 or 18 1/2 percent in New York City in the 80's. In the 1980's you could buy a 1200 square foot loft in Soho for 100,000. BUt that 100,000 cost you 1800.00 a month on a mortgage before you even got to taxes and maint.

[MSROADKILL612]

09:09 AM on 02/14/2011

Still, real estate is a commodity like no other. No two houses are the same. To say there is a market price for a house is nonsense (an expectation maybe but we all know how they can work out)

Trying to buy at the absolute bottom and sell at the absolute top is a mugs game. Buying a bargain and selling when you have had a good run is more like it.

The primary function of a house is to house your family for the next 20 years or so. Speaking from afar, prices seem so cheap, I suspect if you found a place you like (location x3), and rang a builder for a price on building an equivalent home, you would find you were getting the land free. Now thats a bargain. If you can lock in 5%, thats a bargain too, given the outlook for inflation.

Further to the bottom of the market thing, it takes ~6 months to carefully choose a house, so if you pick the bottom perfectly, you will be buying on the upswing.

[Paul Sta]

10:24 PM on 02/13/2011

Economic signals suggest the recovery is gaining momentum.

Higher rmortgage ates, higher food and energy prices, massive foreclosures, yep the economy is looking up!

This has to be the biggest BS line of the year,

[tooncesrocks]

09:08 PM on 02/13/2011

wow... what a fantastic piece of propaganda this story is... full of wild speculation... complete falsehoods (unemployment is at 22% folks... the rate drops when people have been unemployed too long to continue to draw... thus making the rate continually look like it were going down.)

[big tom]

06:09 AM on 02/13/2011

doesnt matter what the rates are if u donot have a job... i sold many single family properties when rates were 12 and above. people had a job with benifits. look what they got now.. republicans want them to have even less..

[AmosKnows]

09:28 PM on 02/12/2011

How do you know you're ruled by Kings and Queens? Simple:

Whatever "news" story comes out, whatever 'legislation" is passed, whatever "policy" is implemented you will find that you can ALWAYS follow the benefit right back to THE MONEY.

[FastExhaust]

04:16 PM on 02/12/2011

Banks are more into taking interest than giving interest. When's the last time the interest rate on a regular savings account was something the be excited about?

[Ed Baker]

11:27 AM on 02/14/2011

Banks don't fund mortgages and don't set mortgage rates.

[TWOMANY]

05:05 PM on 02/11/2011

Raising RATES is how BANKS will agaiiin steal-back their VALUE even while property values drop lower. In fact, the lower the value and higher the rate is music to their ears...

This is Wall Street handing America POISON PILLS to cure our sick economy. Banks rip-off the borrowers - steal their homes - then drive down values further to encourage more foreclosures. They were already paid for that loan when it was sold to the cessPool Trust and investors swarmed with love & kisses...

So, raising the rate - they are paid the SAME 2500 MONTHLY PAYMENT for the house they foreclosed but SELL it 100k cheaper... The banks don't care because the money still comes out the same to them. This way the American people get gang-raped by the Banks when creating the self-destruct mortgage loans - rape them again with penalties and outrageous fees - rape them again a foreclosure - rape them again cashing the mortgage ins, rape them again when they RESELL that SAME HOUSE 100k less - but are demanding the SAME MONTHLY MORTGAGE PAYMENT...

Can we kindly ask a B-52 to make ONE BIG DEPOSIT on these banks and Fed Reserve with a MOAB - complimeents of the Red, White, & Blue...

We need a REVOLUTION...!

[oldngrumpy]

10:23 PM on 02/12/2011

Less than half of qualified Americans voted in 2010 and half of those voted against their own financial interests to perpetuate a bumper sticker ideology presented to them by salad shooter thinkers. That doesn't entitle a society to a violent revolution. They must be reserved for cases where there is no democracy available or the polls are rigged. We can't stand up from our decades long slumber in our Lazy Boy and take up arms. That is not the right the founders had in mind and who's to say such a society of political sloths will do better the next time around?

[tooncesrocks]

09:11 PM on 02/13/2011

let's not pretend that who you vote for matters. Obama fooled everyone... and to pretend that he is not a complete corporate puppet is utter nonsense. Vote if you want, but vote for mickey mouse because a vote for anyone else is a vote for a corporate master.

[LegalSin]

02:29 PM on 02/11/2011

The Federal Reserve and their Wall Street offspring have engendered too much debt laden upon our economy.

Unfortunately (or fortunately depending upon point of view), rates need to rise over time now to at the very least engender reductions in debt, proper saving and productive investment and purchases once again.

Consequently, as the article both explicitly mentions and implicitly suggests as well - as rates rise, home prices will have to come down much more to where Americans can purchase and finance at reasonable affordable prices once again given the rate restrictions on the size of the given debt (loan or mortgage) taken out. This is good thing over time as it forces Americans to not over leverage themselves like in the past.

The Federal Reserve's quantitative easing programs only help the banks and wall street ameliorate their only financial concerns.

[TWOMANY]

03:43 PM on 02/11/2011

So - paying 2000-per month for a 200k house is better than paying 2000-per month for a 3000k house? If the rates go up, the housing prices drop but the consumer still pays the SAME (sort-a-speak) monthly payment... Granted, I agree requiring a 20 or even 30% deposit should be enforced and encouraging folks to "save" instead of borrow is a GREAT idea... but charging more for the same thing is not necessarily the best way to do it...

This is especially-so here - because these lying thieves CREATED the mess. That is akin to allowing a theif to steal more so they can pay back what they stole before. Of course, though we are talking about the Gov so, hey, it probably makes perfect sense to them...

I agree with you about the Fed Reserve and the special quasi-calculators... me-thinks that someone should check their calculator batteries at the Fed Reserve... They seem to count like the Three Stooges - 1 for them and 1 for us - 2 for them and another-one for us - 3 for them and another-one for us... quantitative easing on LSD maybe...? :-)

[Littleguylobby]

11:22 AM on 02/11/2011

Abolish the FED.

[Mondieu]

01:25 PM on 02/11/2011

I'm with you!!

[Its-All-Good]

09:55 AM on 02/11/2011

Everything should be fine we are only down 16 percent from the 14,000 high on stocks.. whats the big deal??

[rickthepainter]

08:50 AM on 02/11/2011

% of upside down homeowners pushing 27%,2011 poised to break 2010 record of foreclosures and short sales further deflating home prices and equity.Banks hitting record profits again.They have no motivation to deal,as they can write off losses,and kick more people to the curb.Solution,remove write offs for foreclosures and short sales,and allow write offs for principal reductions only,same out come for Banks,brings 15 million mortgages back to zero,and stops foreclosures,and further decline in home prices.

[nopilikia]

03:07 AM on 02/11/2011

5%.....say goodbye to a rush for a mortgage. Banksters get money at 0% from the Fed.

[Its-All-Good]

09:54 AM on 02/11/2011

They are also selling the notes which allows a fresh "Credit Default Swap" *(insurance) to be put in place to make more money than working with the devastation. Backed by FDIC

[Peter007]

10:02 AM on 02/11/2011

Banks are not stupid. They are not going to borrow at 1/2% and lend out that money at 5% for 30 years. That 1/2% is only good for a day or a week. In 30 years, that rate will probable go to 10% at some time and if that happens, that loan would be a Major loss.

[nopilikia]

04:24 PM on 02/11/2011

They borrow at 0% and loan at 5%........be it 30 days or 30 years that ratio for that loan does not change.

[TWOMANY]

04:46 PM on 02/11/2011

These Banks did NOT use THEIR FUNDS to create these loans. They used Investor's funds by Pre-Selling the cessPool Trusts as MBS prior to creating them.

Then they bypassed State's Real Property & UCC laws to evade taxes by NOT transferring the Notes to the cessPool Trusts, which also VIOLATES the (IRS) REMIC Provision REVOKING their TAX FREE STATUS - that's right, this is ALL TAX FREE MONEY for these pretender-Lenders! They already KNEW these loans would DEFAULT because they these families were unable to repay.

This means then - these thieves pretended to LEND but did not KNOWING they could still CASH THE MORTGAGE INS. So, a 300k property is rigged to implode on borrower in 3-5yrs. These Lenders who NEVER used a NICKEL of their FUNDS - then CASH IN the Mortgage Ins, gang-rape these families month after month, and finally toss them to the street -as planned. They then illegally foreclose pretending another sale via auction - but keep in mind, they NEVER used a penny of their funds, and were PAID 100% on for unpaid principle PLUS all closing costs & fees, and then cash other insurances.

The LENDERS never transferred the Notes making it illegal to foreclose but also defrauding the investors.

Banks STOLE - 300k from Investors, recieved payments, deposits, & closing costs, CASH Mortgage Ins, steal-back property (they never loaned funds for), Auction to insider paying them AGAIN, resell by insider shell co. and EARN another chunk...

NOW COMES BAIL OUT FUNDS???

[Obi-jonKenobi]

02:22 AM on 02/11/2011

I'm confused here, I thought that "quantitative easing" - the Fed buying billions worth of bonds - was SUPPOSED to push the long-term interest rates DOWN as the short-term rates were already as low as they could make them! But, just the opposite has happened.

Ok, when they started their program they had the misfortune of doing it at the same time the markets were roiled by the meltdown in Ireland causing concern about the Euro and interest rates spiked up as money fled to the safety of the bond market.

Then I read yesterday that quantitative easing was initiated to PREVENT deflation and that what it has done is actually create INFLATION in some areas of the world economy - especially commodities like food (wheat, corn, etc.). MAYBE that's because the affect of the Fed's program has been to cause the dollar to slide and PERHAPS that's why commodity prices have risen (because they're priced in dollars?). I don't know. Wish I could find someone this since I was considering refinancing and am on the fence.

Anyone out there care to give me their insight or a link to someone that knows what's going on here? Bernnake didn't reassure me yesterday that he's on top of it in his appearance before the House committee as he didn't see ANY link between quantitative easing and inflation in commodities. Whatever they're doing only seems to be making it worse if the goal is to lower mortgage rates.

[no body]

07:04 AM on 02/11/2011

The deflation everyone is talking about is at the monetary level and the M3 money supply. It's a gauge of future business activity, when it is inflating businesses are borrowing to expand. When it is deflating businesses are not borrowing and contracting.

Commodity inflation is due to two things: by the fed expanding it's balance sheet the dollar weakens against other world currencies and too much money chasing too few assets like the DOTCOM, housing and current gold bubbles (speculators). Interest rates are only going to climb from now on until they level off. The bigger issue for a home owner is that in the next few years the price of oil will hit $150 bbl. which will affect most everything you buy and how you get to work.

So the trick is to balance the two trends so you come out ahead.

[Peter007]

10:09 AM on 02/11/2011

I just have a guess.

Pushing interest rates down does appear to make them rise somewhere else.
You are correct that as lots of dollars flow around the would, debt holders demand a higher long term rate to compensate for anticipated inflation. Your mortgage rate is mostly dependent on the 10 year bond. Watch that number.

I would advise you to lock in a 30 year rate if you intend to stay in your house for the next 5 years. Or get a 15 year rate if you can afford it. You can always pay down a 30 year mortgage in 10 or 15 years.
If you plan on moving in 2 years, go for the low interest adjustable.
Long term rates will be moving up...

[Wow Unbelievable]

12:55 PM on 02/11/2011

That's what I did... I paid off a 30 year in 16 years.