NATIONAL NEWS - Mortgage rates rose abruptly this week, making their biggest jump in two decades, as volatility on Wall Street spread throughout the financial system. A 30-year, fixed-rate mortgage averaged 6.46 percent this week, up from 5.94 percent last week, mortgage giant Freddie Mac reported Thursday. It marked the third increase out of the past four weeks, yet interest rates are back where they were two months ago.
"It's not supposed to swing that much. There's a degree of uncertainty, there's a degree of fear. In 32 years in the business, I have not seen anything like it," said Marty McCormick, owner of McCormick and Co., a Santa Rosa mortgage broker and real estate sales office.
The rate hike was the biggest one-week increase since April 1987, according to Bankrate.com. The cause: Investors favored bonds over mortgages, reflecting concern with the continuing decline in the housing market and the weakening economy, analysts said. "The residential mortgage market has been difficult to assess. It leads to more tightness in the credit market. The interest rate is going up because of the tightness," said Robert Eyler, director of the Center for Regional Economic Analysis at Sonoma State University. "If we were in a stronger economy, the mortgage market would be less risky."
Borrowers have paid a premium for that uncertainty the past week. A home buyer taking out a loan this week would pay about $100 more a month for a mortgage on the typical Sonoma County home, compared with a week ago. "There's a psychological blow," McCormick said. "They've got to save elsewhere and make adjustments. There's a fringe of people who may not qualify."
The rate hike adds anxiety to buying a home and refinancing loans, but isn't expected to drag down home sales in Sonoma County, where prices have fallen to six-year lows, analysts said. More buyers are entering the market because falling prices make more homes affordable. Home sales have surged in Sonoma County the past six months, hitting a two-year high in September. The region's median home price of $359,000 is the lowest since March 2002.
Higher interest rates might be one reason to hold off, but likely not enough to keep out buyers who can qualify for a mortgage, lenders said. "I tell them, go out and look. No one has to buy right now," said Kris Anderson, a mortgage broker for Allstate Mortgage Co. in Santa Rosa. "But if you're getting a good deal, they're going to stay with it."
But sudden increases in interest rates frustrate homeowners looking to refinance into lower mortgage payments. An interest rate that appears attractive one day can quickly disappear. But even with rates moving higher, they remain favorable. "Historically, they're still very low," Eyler said.
Rates could move back down as the economy weakens. Analysts expect federal officials to lower the prime lending rate to bolster the economy. "We're in extraordinary times right now. We've just got to let this play out," McCormick said.
Source: Press Democrat