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This morning, the Mortgage Bankers Association reported that 30-year mortgage rates are now at their highest levels since July 2002. The average 30-year fixed-rate home loan is now charging 6.42 percent interest, up from 6.31 percent a week earlier.
Mortgage rates are being pushed higher by the recent move in long-term bond yields. The yield on 10-year treasury notes has climbed from 4.33 percent in January to as high as 4.78 percent Tuesday, as investors sell long-term bonds because of inflation fears.
Housing demand has already begun to show signs of weakness. The fact that mortgages are becoming more expensive now is only expected to exacerbate this trend.
Thirty-year mortgages aren't the only types of loans being affected. In a separate report, the mortgage buyer Freddie Mac noted that 15-year fixed-rate mortgages are now charging 6 percent, the highest level since the summer of 2002.
Adjustable-rate mortgages are also seeing a big bump. One-year treasury-indexed adjustable-rate mortgages (or arms) are now averaging 5.45 percent, according to Freddie Mac. These interest rates haven't been this high since September 2001.
"Stronger than expected gains in the manufacturing and service industries—coupled with higher labor costs—ignited inflation concerns, which led to the rise in mortgage rates this week," says Frank Nothaft, Freddie Mac's chief economist. He added that mortgage rates will continue to be pressured since many now believe the Federal Reserve Board will hike short-term interest rates "three more times this year, instead of two," he says.
Regardless of how many more times the Fed lifts rates, "the housing industry is now beginning to shift into slower gear," Nothaft says. "And higher mortgage rates will only strengthen that change."
