Interest rate surge hammers US mortgage apps
An unrelenting surge in interest rates for home mortgages pushed borrowing costs to their highest level in two years, stymieing demand from potential homeowners, data from an industry group showed on Wednesday.
Interest rates on fixed 30-year mortgages rose for the ninth week in a row to average 4.68 percent in the week ended July 5, the Mortgage Bankers Association said. It was the highest level since July 2011 and a 10 basis point increase over the week before.
The surge in costs has been expected to push some undecided buyers into the market as they rush to lock in rates before they rise even more, but MBA's seasonally adjusted gauge of loan requests for home purchases fell 3.1 percent, the second-straight week of declines.
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Rates have been rising since early May, and the increase accelerated after comments from Federal Reserve Chairman Ben Bernanke last month that the central bank expects to wind down the pace of its quantitative easing later this year if the economy improves as expected.
The Fed has been buying $85 billion a month in bonds and mortgage-backed assets to keep borrowing costs low and stimulate economic growth. The historically low mortgage rates have helped lure in buyers as the housing market gets back on its feet.
The recent higher cost of mortgages has raised concerns that the increase could dampen demand and slow the housing recovery, though most economists do not expect the recovery to be derailed. Even with the increase, rates remain historically low.
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Demand for refinancing has been hit harder as refinancing becomes less attractive at higher rates. MBA's measure of refinancing applications fell 4.4 percent last week and the refinance share of total mortgage activity slipped to 64 percent of applications.
The index of mortgage application activity, which includes both refinancing and home purchase demand, fell 4 percent.
The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.