U.S. mortgage rates rose to their highest levels in a year as reports showed the housing market and economy strengthening, signaling to bond investors that the Federal Reserve may reduce efforts to push down borrowing costs.
The average rate for a 30-year fixed mortgage jumped to 3.81 percent in the week ended today, from 3.59 percent, McLean, Virginia-based Freddie Mac said in a statement. The average 15- year rate increased to 2.98 percent from 2.77 percent.
Yields for 10-year U.S. Treasuries touched 2.23 percent yesterday, the highest level since April 5, 2012, amid speculation the Fed will reduce asset purchases. Federal Reserve Chairman Ben S. Bernanke told Congress last week that the central bank will scale back stimulus efforts if the employment outlook shows sustainable improvement. Home-loan interest rates increased for a fourth week after hovering close to record lows early this month.
"Backing off on quantitative easing sparks fears among investors because cheap, long-term credit is good for growth," Barney Hartman-Glaser, assistant finance professor at Duke University in Durham, North Carolina, said in a telephone interview yesterday. "At the same time, if Bernanke feels that we don't need cheap, long-term credit to fuel growth, then that means we're returning to an economy that can support itself."
The economy is improving as the housing market rebounds. The Conference Board's consumer-confidence index climbed to the highest level in more than five years in May, data from the New York-based private research group showed. The S&P/Case-Shiller index of property values in 20 cities rose 10.9 percent in the year through March, the biggest 12-month gain since April 2006.
U.S. mortgage applications dropped last week for a third consecutive time. The Mortgage Bankers Association's index fell 8.8 percent in the period ended May 24 from the prior week, with its refinancing measure slumping 12.3 percent to the lowest level of the year and its purchasing measure climbing 2.6 percent, the Washington-based group said yesterday.