Average 30-Yr Mortgage At 15-Month-High

CHICAGO – Average fixed mortgage rates continue to hover at their highest levels in more than year, with the 30-year this week hitting 6.15%, Freddie Mac's (FRE) latest survey showed Thursday.

The 30-year rate has increased for seven weeks without pause, in step with gains in U.S. Treasury yields as the bond market sees higher inflation risks only partly offset by the Federal Reserve's inclination to keep tightening interest rates to head off deep-seeded inflation.

Investors demand higher yields to offset inflation risks, but that also raises borrowing costs across lending markets.

The average rate paid on a 30-year, fixed loan increased for a seventh straight week, to 6.15% through Oct. 27, up from 6.1% a week earlier. Last year at this time, the 30-year rate averaged 5.64%.

The 30-year rate was last higher when it hit 6.21% in the week ending July 1, 2004.

The average for the 15-year fixed loan this week was 5.69%, up from last week's 5.65% and last year's 5.01%. The rate hadn't been this high since hitting 5.7% in June 2004.

The one-year adjustable-rate mortgage (search), or ARM, averaged 4.91%, up from last week when it averaged 4.89%. Last year at this time, it was at 3.96%.

The 1-year ARM hasn't been this high since April 2002. It's been rising alongside the Fed's 11 interest rate increases — and counting - since June 2004, when short-term interest rates were at four-decade lows.

Five-year Treasury-indexed hybrid ARMs averaged 5.63%, up from last week's 5.59%.

There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year. This is the highest the five-year ARM has been since Freddie Mac began including this rate in its weekly survey.

To achieve the mortgage rates this week, the 30-year and 15-year loans required 0.5 point; the five-year loan required 0.6 point; and the one-year loan 0.7 point. A point equals 1% of the loan amount, charged as prepaid interest.

The Mortgage Bankers Association (search) said this week that it looks for moderately faster economic growth and more Fed tightening to push average long-term mortgage rates up to 6.7% by the middle of next year, before flattening through much of 2007.

Higher rates are creeping into monthly housing-market statistics.

A report Thursday morning showed inventories of unsold new homes rose to a record level in September as sales have slowed in the past two months from the summer's record clip.

Sales of new homes in the United States increased 2.1% in September a seasonally adjusted annual rate of 1.222 million after an 11.6% slump in August, the Commerce Department estimated Thursday.

The MBA's weekly data, issued Wednesday, showed that the volume of mortgage applications dropped nearly 8% last week over the prior week.

Applications for mortgages to buy homes fell 7.4% and refinancing applications decreased 8.5%. Refinancing accounted for 42.5% of last week's applications, down from a 42.8% share a week earlier.

"Obviously, refinancing is going to take the biggest hit as mortgage rates tick up," said Freddie Mac Chief Economist Frank Nothaft. "Refinancing comprised about 40% or more of the total volume of mortgage originations over the last 13 months. This share, however, will lessen as mortgage rates continue to rise."

"Going forward, homeowners wanting to use some of the equity in their homes for home improvement or other purposes will make up a larger portion of the refinance business."