By Mike Colpitts
Banks and mortgage companies raised mortgage rates on new borrowers this week as the demand for new home loans and refinancing sunk, according to Freddie Mac. The rate on the benchmark 30-year fixed rate mortgage saw a jump to 3.98%, a tenth of one-percent higher than last week.
The rate was at its all-time record low hitting 3.88% a week ago, according to the Freddie Mac survey which accounts for about 75% of all U.S. mortgage lending. However, despite the jump it’s the eight straight week that the 30-year loan has remained under 4.00%.
Mortgage rates are expected to remain low through at least 2012 as the Federal Reserve keeps its lending rate for banks and other financial institutions at or near 0. The Fed also acknowledged this week that the housing market is still troubled and that it is likely to take a number of years to recover from the real estate collapse.
The 15-year fixed rate mortgage also saw a hike this week, jumping to 3.24% from an average of 3.17% a week ago. The 5-year adjustable rate mortgage averaged 2.85% this week, up three basis points from a week ago. But the seldom purchased 1-year ARM remained the same as last week at 2.74%.
“Fixed mortgage rates ticked up this week as the housing market ended 2011 on a high note,” said Freddie Mac chief economist Frank Nothaft. “New construction of one family homes rose 4.4% in December to an annualized rate of 470,000, the most since April 2010.”
Existing home sales also showed a 5% improvement for the month of December, according to the National Association of Realtors. But closed transactions climbed only about 2% over 2010. The increase in home sales is projected to sustain in the new year, with about 5% more in total sales for the year.
A new Obama administration program, to be introduced in Congress within the next several weeks, should prompt another resurgence of refinancing. Underwater homeowners who have been unable to take advantage of other programs could see additional options for obtaining a new mortgage at lower rates if Congress approves the measure.