Better hurry to buy or refinance, home-loan rates are rising again

If you are planning to buy a home this spring, better hurry. With home-loan rates nearing 6 percent, it appears that the best mortgage deals since the 1950s are rapidly vanishing.

In late April, 30-year fixed-rate mortgages averaged 5.94 percent, up from 5.89 percent a week earlier, according to Freddie Mac’s Primary Mortgage Market Survey. Last year at this time, benchmark 30-year fixed loans averaged 5.79 percent.

“Rates have moved upward more than a half of 1 percentage point over the past five weeks,” said William Arnold, a loan officer with Mid America Bank. “We now are quoting 6 percent on our 30-year fixed mortgages, up from 5.375 percent on March 12. Rates on five-year adjustable-rate loans now are going for 5 percent, up from 4.125 percent five weeks ago.”

The rate hike means that the monthly principal and interest payment on a $250,000 home loan would increase by about $100, to $1,500 a month for a typical 30-year mortgage. The payment on a five-year ARM would be around $1,342.
Freddie Mac reported that 15-year fixed mortgages averaged 5.25 percent in late April, up slightly from 5.23 percent a week earlier. A year ago, the 15-year fixed-rate averaged 5.12 percent.

Adjustable-rate mortgages (ARMs) still are the best deal. One-year Treasury-indexed ARMs averaged 3.69 percent in late April, unchanged from a week earlier, Freddie Mac reported. At this time last year, the one-year ARM averaged 3.79 percent.

The rising rates come against the backdrop of an improving jobs picture. The March employment report documented an unexpectedly large jump in non-farm, payroll employment. In total, 308,000 jobs were added in the U.S. economy in March, the largest gain since April of 2000. The January and February employment numbers were also revised upward by a total of nearly 90,000 jobs.

“The job gains came primarily in the construction sector, which added 71,000 jobs, reflecting strong demand for new housing, and the retail service sectors,” Freddie Mac’s economic outlook reported. “March marked the first month since August of 2000 that there were no job losses in the manufacturing sector.”

While interest rates are rising, deals still are out there for home buyers who shop around, experts say.

For example, condominium and townhome buyers at the 36-unit Shakespeare Court, a new-construction development in the North Kenwood neighborhood on Chicago’s South Side, now can qualify for a fixed-rate mortgage with an initial rate of 4 percent under a special loan program offered by the Thrush Companies and Wells Fargo Home Mortgage.

“Under our affordable buy-down loan program a family can purchase a two-bedroom, two-full-bath brick condominium for $238,900 with only a 5 percent down payment and own their home for a monthly principal and interest payment of only $1,083,” said developer David L. Chase, president and CEO of the Thrush Companies.

Despite the increases in rates, Frank Nothaft, Freddie Mac chief economist, said home purchase applications were still strong. “However, refinancing applications fell over the last four weeks, according to the Mortgage Bankers survey, and the decline is due almost entirely to higher mortgage rates,” Nothaft said.

Meanwhile, Alan Greenspan, Federal Reserve Board chairman, told Congress that America’s recovery has good momentum, and that it’s likely that short-term interest rates will have to rise. Since June of 2003, the Fed has held the federal funds rate, a key short-term interest rate, at 1 percent, the lowest level since 1958.

“Although this past month’s dramatic rise in mortgage rates is consistent with an economic recovery, it will take more than one month of strong employment gains to verify this recovery is sustainable,” Nothaft said.

“The market is behaving as though the recovery is a fait accompli and has entered a volatile period of trying to outguess the Federal Reserve Board’s next move,” he said.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc.,

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