Higher Mortgage Rates Seen as Hopeful Sign

Higher mortgage rates signal an economic rebound from the darkest gloom about U.S. national and economic security following the Sept. 11 attacks, analysts said on Thursday.

The national average for a thirty-year fixed rate home loan, the most common type of mortgage, edged down a basis point to 7.16 percent in the week ending Friday from 7.17 the preceding week, mortgage finance firm Freddie Mac said on Thursday.

Those rates are the highest since mid-July and well up from a low of 6.45 percent in early November.

The average national rate for the popular mortgage was also higher than a year ago --it was at 7.13 percent in the week ending Dec. 29, 2000 -- for the first time in 13 months. The climb comes as the markets recover from uncertainty about the effects of the Sept. 11 attacks and their aftermath on the U.S. economy and the depth of the recession, analysts said.

``It's an indication that we're really returning to normal business activities,'' said Donald Bradley, an economist for McLean, Va.-headquartered Freddie Mac.


Mortgage rates track 10-year Treasury bonds, whose yields have risen as investors anticipate the Federal Reserve will eventually raise short-term rates as the economy warms up again. The Fed cut rates 11 times in 2001 to a 40-year low of 1.75 percent to stimulate the flagging economy.

Rising mortgage rates also signal a greater demand for borrowing, Freddie's Bradley said.

Mortgage rates were at their lowest at a time when it was clear the United States had fallen into recession, and when it was uncertain how successful the U.S. military campaign in Afghanistan would be, said Mark Vitner, an economist with Wachovia Securities in Charlotte, N.C.

``During that extreme bout of pessimism, interest rates were driven to unsustainably low levels,'' he said.

As the end of recession looms, long-term rates will be driven up further by anticipation of short-term rate climbs, the U.S. budget deficit and an increased demand for credit, said Richard DeKaser, chief economist for National City Corp.

``The deepening of the recession post-Sept. 11 is beginning to lift,'' he said.


The housing market remained resilient during the downturn, experiencing a refinancing boom on the low rates. That side of mortgage finance is highly likely to dry up, analysts said.

``It is true the opportunity for homeowners to refinance their property at considerably lower rates has probably passed for the foreseeable future,'' said Bradley.

However, an increase in the mortgage bankers' index of home purchases to record levels indicates activity in the housing sectors should remain strong in the coming year, he said.

At the same time, unusual factors -- the unusually low interest rates, warm weather, and tax rebates -- may have inflated the extent of housing activity toward the end of the year, said Wachovia's Vitner. He forecasts a slow, sluggish recovery, with no raises in short-term rates until the end of the year.

``We think we'll see a bit of a reversal there,'' he said. ''We think the first quarter is going to be surprisingly weak.''