Fear that the Federal Reserve will soon cut back on its $85 billion a month bond purchases has forced mortgage rates to rise for six straight weeks — putting the near-term health of the housing sector at risk.
The rate on the average 30-year fixed rate mortgages last week rose to 3.98 percent, according to mortgage buyer Freddie Mac.
The increase, from the prior week’s average of 3.91 percent, put the rate of America’s most popular mortgage at a 14-month high.
Michelle Meyer, a senior US economist at Bank of America, said in a note to clients that the sharp rise of late could cool home sales temporarily but wouldn’t “derail the recovery” over the long haul.
The rising rates appear to have lit a fire under those looking to buy a house.
Mortgage applications last week increased for the first time since early May, according to the Mortgage Bankers Association, as buyers, feeling rates will continue to rise, looked to lock in their price.
Since early May, the rise in rates would have added an extra $100 a month to the average $300,000 30-year loan.
Freddie Mac said that rates for 15-year fixed mortgages, popular with those refinancing homes, rose to 3.10 percent, up from 3.03 percent a week ago — and up 2.98 percent a year ago.
“The sharp rising rate is a double-edge sword,” said John Herrmann, US Rate Strategy Director at Mitsubishi Ufj Securities USA.
“On one side of the sword, you have the fence-sitters who think the rates will stay low for a long period of time and think they can take their time,” Herrmann said, “and then you have marginal buyers who want to take a step back because of the rising prices.”
Although the rates are growing faster than most expected, some believe that it is too early to say the economy is secure.
It’s “hard to say because mortgage rates started to increase at the end of May and we don’t really have very much data,” Meyer said.
The “speed by which the rates are rising is more of a negative than a positive because it’s a very rapid adjustment in terms of [what buyers can] afford.”
