Mortgage Rates Post Another Big Jump

Mortgage rates took another big jump for the second week in a row, frustrating homeowners who had still hoped to lock in a refinance at ultra-low rates, but perhaps not enough to deter bargain-hunting home buyers seeking to take advantage of a depressed housing market.

Average rates on a 30-year fixed rate mortgage shot up nearly four-tenths of a percent, according to Freddie Mac's weekly Primary Mortgage Survey, to 5.29 percent. The Bankrate.com weekly survey pegged the 30-year rate even higher, at 5.65 percent, an increase of 20 basis points on top of an almost identical increase the week before.

Mortgage rates have risen sharply the past two weeks as improving economic signs have prompted investors to demand higher returns on their money. "30-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high," said Frank Nothaft, Freddie Mac vice president and chief economist." And the slowdown in the housing market has now detracted from economic growth for the past 13 quarters, the longest quarterly stretch since at least 1947, according to the Bureau of Economic Analysis."

Even so, there are signs the housing market may be moderating, Nothaft said, noting that pending sales of existing homes have risen for three months in a row, with an April increase of 6.7 percent the largest monthly increase since October 2001.

The higher rates may squelch refinancing activity, as many homeowners may no longer be able to improve significantly over their current rate to justify the transaction costs. Even so, rates remain unusually low by historical standards and are likely to remain attractive to home buyers, given foreclosure-depressed housing prices and an $8,000 tax credit for first-time homebuyers.

The credit market also remains fairly volatile. Interest rates on 10-year Treasury bonds, which heavily influence mortgage rates have been fluctuating in recent days, from a six-month high of 3.75 percent last week, which kicked off the jump in mortgage rates, to a low of 3.54 percent on Wednesday, then back up to 3.69 by Thursday's close.

The Fed is also scheduled to hold another sale of 10-year bonds next week, which could kick rates either up or down depending on how it is received by investors.