Signs point to mortgage rates rising, making homebuying more expensive

Mortgage rates, which have been in a rut the past couple months, began moving higher this week.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average rose to its highest level in a month. It grew to 4.54 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.52 percent a week ago and 3.92 percent a year ago.

The 15-year fixed-rate average inched up to 4.02 percent with an average 0.4 point. It was 4 percent a week ago and 3.20 percent a year ago. The five-year adjustable rate average was unchanged at 3.87 percent with an average 0.4 point. It was 3.18 percent a year ago.

For much of the summer, mortgage rates barely budged. Because rates tend to follow the movement of long-term bonds, particularly the 10-year Treasury, they had hovered in a narrow band.

Then this week, the yield on the 10-year Treasury started creeping up toward the 3 percent threshold. It climbed to 2.96 percent Monday before retreating the past two days. It closed at 2.94 percent Wednesday. Yields on long-term bonds went up after President Donald Trump suggested that the Federal Reserve's strategy of raising rates could hurt the economy.

At the moment, the Fed's proposed rate hikes are pushing bonds in one direction, while trade tensions are pulling them in another.

"Mortgage rates increased early this week, erasing the past month of gradual declines," said Aaron Terrazas, senior economist at Zillow. "The combination of a new round of trade tensions between the U.S. and China, comments from several Federal Reserve officials and the shifting monetary policy outlook in Japan all contributed to the trend. Q2 GDP data due Friday are the most important economic data to watch, as markets aren't expecting any changes to the interest rate policy from the [Federal Open Market Committee's] meeting next week."

Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than half the experts it surveyed say rates will rise in the coming week. Jim Sahnger, mortgage planner at Schaffer Mortgage, disagrees. He predicts rates will hold steady.

"There has been a lot of noise about tariffs and trade wars that have pinched the bond markets a bit this week," Sahnger said. "Concerns about inflation are warranted, should tariffs push prices higher for companies and consumers alike. Manufacturers are already issuing statements that higher raw material prices will impact both profitability and end-user prices. That said, it may be a bit premature to think this is a done conclusion. Looks for rates to remain stable until we get additional information to warrant this is where we are going."

Rising home-loan rates are contributing to a slowdown in the housing market.

"The next few months will be key for gauging the health of the housing market," Freddie Mac chief economist Sam Khater said in a statement. "Existing sales appear to have peaked, sales of newly built homes are slowing and unsold inventory is rising for the first time in three years. Meanwhile, affordability pressures are increasingly a concern in many markets, as the combination of continuous price gains and higher mortgage rates appear to be giving more prospective buyers a pause. This is why new and existing-home sales are not breaking out this summer despite the healthy economy and labor market."

The market's sluggishness is apparent in mortgage applications, which were flat last week, according to the latest data from the Mortgage Bankers Association. The market composite index - a measure of total loan application volume - decreased 0.2 percent from a week earlier. The refinance index ticked up 1 percent, while the purchase index slipped 1 percent.

The refinance share of mortgage activity accounted for 36.8 percent of all applications.

"The housing market continues to suffer from a lack of inventory," said David Stevens, MBA president. "This is best illustrated in the purchase market, with purchase applications dropping last week to their lowest level since May.