Mortgage Rates Go Back Above 5 Percent

By:
Peter King | December 24, 2009

Interest rates on standard 30-year mortgages rose above the 5 percent mark for the first time in eight weeks, according to the weekly Freddie Mac survey released today.

Average interest rates on 30-year fixed-rate mortgages rose to 5.05 percent for the week ending Dec. 24, up from 4.94 percent last week. The last time rates were above 5 percent was the week ending Oct. 29, when they were at 5.03 percent.
 
Rates on 15-year fixed-rate mortgages were up as well, up to an average of 4.45 percent from 4.38 percent last week.
 
Interest rates on 30-year fixed-rate loans have remained near or below the 5 percent mark since the beginning of September, according to Freddie Mac. The low rates, along with a federal tax credit, homebuyers, seem to have spurred interest among homebuyers; the National Association of Realtors reports that sales of existing homes have risen 28 percent during that time, to a seasonally adjusted rate of 6.54 million in November.
 
Interest in mortgage refinancing also remains strong, although below the frenetic levels that occurred when rates first dropped below 5 percent last spring for several weeks. The Mortgage Bankers Association (MBA) reports that applications to refinance an existing mortgage made up 75 percent of all mortgage applications for the week ending Dec. 18.
 
Mortgage activity has remained fairly stable over the past month, according to the MBA, with the four-week moving average down 1 percent for purchase applications and up 0.2 percent for refinances.
 

New home sales drop

 
Despite the strong gains in existing home sales, however, sales of new homes have been a different story. The Commerce Department reported that sales of newly built homes fell in November, down 11.3 percent to a seasonally adjusted rate of 355,000. In contrast to the existing home sales figures reported by the NAR, new home sales reported by the government have been relatively stagnant in the second half of the year, hovering around the 400,000 mark for five months before plunging in November.
 
However, the November decline is only slightly outside the predicted margin of error for the survey by the Commerce Department, which stresses that three months are typically required to establish reliable trends.
 
Two factors that may be boosting existing home sales relative to new homes are the first-time homebuyer tax credit and the surge of foreclosed properties coming on to the market. Budget-conscious first-time homebuyers are less likely to buy newly built homes, which in November sold for a median price of $217,000 according to the Commerce Department, compared to a median price of $172,600 for existing homes, according to the NAR.
 
Also, the large number of foreclosures on the market are attracting bargain hunters looking to purchase distressed properties at a discount compared to what the same homes would command in a conventional transaction.

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