Inflation, It’s Not Just For Balloons Anymore

22 03 2007

Mortgage rates posted growth this week on renewed inflation fears, according to surveys conducted by Freddie Mac and Bankrate.com.

In Freddie Mac’s survey, the 30-year fixed-rate mortgage rose to an average 6.16 percent from 6.14 percent last week, while the 15-year fixed-rate mortgage gained from 5.88 percent to 5.9 percent. Points, which are fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.4 on the 30- and 15-year loans.

“Mortgage rates were stable this week as the bond market took readings on producer prices and consumer prices in stride,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement. “Excluding food and energy, core inflation at the wholesale level was up more than had been anticipated in February, but at the retail level the increase was in line with expectations. Weighing the relevant factors, The Fed decided to leave the target federal funds rate unchanged at 5.25 percent.

“Looking at the housing market, construction of new homes picked up in February after falling to a 10-year low in January. The improvement was better than consensus forecasts. Next week’s release of February’s new- and existing-home sales will provide further insight into the health of the housing sector.”

Freddie Mac reported that the average rate on five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) inched up to 5.91 percent this week, while the one-year Treasury-indexed ARM dipped to an average 5.4 percent.

In Bankrate.com’s survey, mortgage rates rose slightly this week, with the average 30-year fixed mortgage rate moving to 6.19 percent. Discount and origination fees on these loans averaged 0.29.

The average 15-year fixed-rate mortgage, popular for refinancing, was unchanged at 5.93 percent, according to Bankrate.com. On larger loans, the average jumbo 30-year fixed rate inched higher to 6.44 percent, while adjustable-rate mortgages were mixed, with the average 5/1 ARM moving up to 6.08 percent and the average one-year ARM holding at 5.96 percent.

Bankrate.com said mortgage rates were up slightly as renewed inflation worries made it unlikely the Fed would trim interest rates any time soon. Larger-than-expected increases in the Consumer Price Index (CPI) and Producer Price Index (PPI) for February made it clear that inflation has yet to fade into the background. With inflation still on the Fed’s radar screen, any likelihood of a Fed rate cut in the coming months was dimmed. Bond yields and mortgage rates both increased slightly, as rates are closely related to yields on long-term government bonds.

Fixed mortgage rates are notably lower than last summer when the Fed last raised interest rates. At the time, the average 30-year fixed mortgage rate peaked at 6.93 percent, and a $165,000 loan carried a monthly payment of $1,090. With the average 30-year fixed rate now 6.19 percent, the same loan originated today would carry a monthly payment of approximately $1,010, which makes refinancing to a fixed-rate mortgage a compelling alternative for adjustable-rate borrowers facing sharp payment adjustments.

The following is a sampling of Bankrate.com’s average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York – 6.14 percent with 0.15 point

Los Angeles – 6.21 percent with 0.41 point

Chicago – 6.3 percent with 0.08 point

San Francisco – 6.13 percent with 0.49 point

Philadelphia – 6.2 percent with 0.26 point

Detroit – 6.25 percent with 0.04 point

Boston – 6.27 percent with 0.05 point

Houston – 6.19 percent with 0.44 point

Dallas – 6.08 percent with 0.47 point

Washington, D.C. – 6.13 percent with 0.48 point

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