Mortgage Rates Post First Increase Since Fed Action

Mortgage rates rose slightly in the past week, the first increase after four weeks of declines that saw rates reach record lows.

In its weekly survey of interest rates, government-backed lender Freddie Mac reported that 30-year fixed-rate mortgages averaged 4.87 percent for the week ending April 9, up from 4.78 percent. Points assessed averaged 0.7 percent.

It marked the first rate increase since the Federal Reserve announced March 18 that it would buy up more than $1 trillion in mortgage-backed securities and Treasury notes in an effort to spur the housing market by reducing the cost of borrowing.

That effort has been somewhat successful, bringing 30-year rates down a quarter point from where they stood the day of the Fed's announcement. However, market pressures appear to have put a floor under rates and may have kept them from dropping as low as they otherwise might have.

"Given these low rates, housing demand has strengthened," said Frank Nothaft, Freddie Mac vice president and chief economist. "Conventional mortgage applications both for refinancing and for home purchases have increased over the past five consecutive weeks ending April 3. Since the end of February, applications for home purchases were up about 22 percent and nearly 129 percent for refinancing, according to the Mortgage Bankers Association."

Although the Fed has been acting aggressively to lower mortgage rates and revive the housing market, market pressures have been working against it. Demand for refinancing and new mortgages has been strong, due to already-low interest rates, low housing prices and an $8,000 tax credit for first-time homebuyers.

At the same time, the failure of several large financial institutions and the collapse of credit markets last fall means there are fewer lenders to process applications and less credit to go around. Lenders are also exercising increased scrutiny, meaning each loan application takes longer to process. As a result, lenders have less incentive to pass along their savings to consumers, exerting upward pressure on rates.

Last year at this time, the 30-year fixed rate mortgage averaged 5.88 percent. The 15-year fixed rate mortgage averaged 4.54 percent this past week, up two basis points, compared to 5.42 one year ago.