Fixed Rates Highest in 6 Months, Freddie Mac Says

CHICAGO – Average 30-year fixed mortgage rates are at their highest in six months, hovering just shy of the key 6% area, the latest survey from Freddie Mac showed Thursday.

Rising for a fourth week without a pause, the average fixed rate paid on a 30-year loan was 5.98% through Oct. 6, said Freddie Mac (FRE) , which has tracked mortgages on a weekly basis since the 1970s.

The rate hadn't been higher since hitting 6.04% in the week ended March 31.

The mortgage industry generally considers 6% as a threshold of sorts; rates below this area are more likely to entice would-be homebuyers into the market. The likelihood that rates will scale this line has historically forced more fence-sitters to jump, particularly those looking to refinance existing loans.

Higher rates may have scared off some homebuyers in the latest week, according to Mortgage Bankers Association (search) data, while more people looking to refinance apparently felt compelled to lock in now.

The volume of mortgage applications slipped 1.1% in the week ended Sept. 30 compared to the prior week, the trade group said in its weekly release issued Wednesday. Applications for mortgages to purchase homes dropped 1.9%, while refinancing applications nosed 0.1% higher.

Refinancings accounted for 44.5% of last week's total applications, up from 43.9% in the prior week.

Storms cloud forecasts

Freddie Mac economists and other industry observers see mortgage rates rising from current levels -- although at an uncertain scope after first Hurricane Katrina (search) and more recently, Hurricane Rita.

Last year at this time, 30-year rates were averaging 5.82%.

But just how high mortgage rates will go in coming months has gotten less clear in the weeks following Katrina and Rita, which along with the widespread destruction and human toll, pushed already-lofty global oil and gas prices even higher.

"Mortgage rates have been rising for the last four weeks on inflation jitters caused in part by extended high energy costs," said Frank Nothaft, Freddie Mac's chief economist.

So far, the Federal Reserve (search) has focused on the inflation risks that come with high energy prices and not on any immediate risk to consumer spending; the central bank has signaled it's not done raising interest rates. Other borrowing rates will follow suit.

Near-term uncertainty comes with Friday's job report. Estimates for September job losses are all over the board, from as lean as 25,000 to as worrisome as 350,000. The long-term nature of any job cuts is also unclear.

"We do think that the economy will continue to grow, albeit at perhaps a slightly slower pace than in the recent past. Mortgage rates will most likely continue to rise with the expansion of the economy," Nothaft said.

In its September outlook, released just days after Katrina hit, Nothaft and his research team trimmed their mortgage-rate forecast for out to the middle of 2006, citing the uncertainty following the storm.

They saw the 30-year rate averaging 5.9% in the fourth quarter, up to 6.1% by the second quarter of 2006 and 6.3% by the end of next year.

Freddie Mac will offer an updated outlook next week.

All rates rise

The average for a 15-year fixed loan was 5.54% this week, up from last week when it averaged 5.48%. A year ago, the 15-year loan rate averaged 5.24%.

Adjustable-rate mortgages (search) also nosed higher in the latest survey.

Five-year, Treasury-indexed hybrid ARMs averaged 5.48%, up from last week, when it averaged 5.44%. There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year.

One-year, Treasury-indexed ARMs averaged 4.77% this week, up from last week when it averaged 4.68%. At this time last year, the one-year ARM averaged 4.08%.

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