Mortgage rates surge to 3-year highs
Friday, March 10, 2006
Mortgage rates surge to 3-year highs
One-year adjustable climbs to 4.3% and the 30-year fixed to 6.2%.
By MATHEW PADILLA
The Orange County Register
Mortgage rates in Orange County this week rose to their highest level in more than three years.
Introductory rates on one of the most popular mortgages – the one-year adjustable – rose to an average 4.3 percent, National Financial News Services said Thursday. That’s the highest since summer of 2002. A year ago, that average rate, based on paying a fee of two points, was 3.5 percent.
Rates on fixed-rate mortgages also have increased. The average rate for a 30-year mortgage – with a fee of one point – is 6.2 percent. That’s the highest since July 2002.
Mortgage rates are rising amid inflation concerns and bond investors’ fears that Japan and Europe are embarking on a campaign of rate increases. Higher rates overseas draw money from U.S. bond markets, pushing up yields on bonds. That causes certain mortgage rates to rise. The Federal Reserve also has been notching up rates since 2004, which pushes up rates on some mortgages.
These days most homebuyers in the county use mortgages with rates that are fixed for a certain period and then adjust to market levels. But these mortgages aren’t the bargain they used to be.
Scott Simon, managing director with Newport Beach-based bond investor Pimco, which buys mortgage-backed bonds, said mortgage volume recently has dipped locally and nationally.
With higher rates making mortgages more expensive, demand for homes has decreased, he said.
“Housing is very much like a super tanker,” he said. “It takes a long time to speed up and a long time to slow down. All the things are in place to make it slow down.”
Strong gains in manufacturing and service industries and higher labor costs have ignited inflation concerns, said Frank Nothaft, chief economist with Freddie Mac.
“The housing industry is now beginning to shift into slower gear, and higher mortgage rates will only strengthen that change,” he said.