Mortgage Rate Hike Ripples Through Uncertain Market

A spike in mortgage rates is sending shock waves through a housing market that is already struggling nationwide, causing buyers to bail on deals and weakening hopes that the market is on the cusp of recovery.

Rates on 30-year mortgage loans rose for a fifth straight week Thursday, averaging 6.74 percent, the highest level in the past 11 months.

Real estate observers say the rates, which just last month averaged 6.15 percent, are projected to rise more, a trend that is expected to sap an already weak housing market, where supply far outpaces demand.

Rates remain low by historical standards, but the rise could still jar the housing market in several ways.

• Sellers could be hurt by falling prices, as buyers must kick in higher interest payments.
• And if prices do hold up, buyers must settle for a lesser dream.

Michael Menatian, a mortgage broker with Sanborn Mortgage in West Hartford, Conn., said he has already had one buyer back out of the market this week and is waiting to hear from two others scrambling to see whether they can cover the costs of higher home loan rates.

Others are switching from long-term, fixed-rate mortgage products to more risky, initially lower adjustable-rate home loans.

“It’s only been a few days, and already we are seeing the effect of the higher rates,” Menatian said.

“Buyers that are in the market, but unsure or on the edge of what they can afford - they’ve walked to the sidelines. This is going to hurt.”

But the rapid rise in rates has dashed hopes of many. The difference in the mortgage payment between rates of 5.99 percent and 6.75 percent rate on a $400,000 home loan is an extra $210 a month.

“It brought us over the edge in what we can afford. Two hundred dollars a month is a big difference,” one would-be buyer said Thursday - especially when offers for her house have been lower than anticipated.

“Two months ago, we were okay. But now things have changed, and we are in a position where we have to pull out.”

Mortgage activity has been on the rise in recent days, as buyers who have decided to move or qualify for a mortgage refinance before higher rates kick in.

Freddie Mac reported Thursday that 30-year, fixed home loan rates averaged 6.74 percent this week, up from 6.53 percent a week ago, and marking the biggest one-week rise in 30-year rates in more than three years.

The five consecutive increases have pushed 30-year mortgages to their highest level since July 2006, when mortgage rates were at 6.80 percent.

Mortgage interest rates traditionally track 10-year Treasury note yields because the average home mortgage remains in place for nearly 10 years.

Economists have predicted that rates will continue to inch upward in the coming weeks, but few speculate that they would surge past 7 percent.

At least this year.

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