Fixed Mortgage Rates Jump

30-year mortgage rate averages 3.4 percent, highest in 8 weeks

Jan. 10, 2013
By E. SCOTT RECKARD Los Angeles Times - McClatchy-Tribune Information Services


With employment improving and the fiscal cliff averted, fixed mortgage rates have jumped to their highest level in two months, with lenders offering the 30-year home loan at 3.4 percent this week, up from 3.34 percent last week, according to Freddie Mac.

The typical offering rate on a 15-year fixed loan edged up from 2.64 percent to 2.66 percent, the big government-supported loan buyer said Thursday in its weekly report. Borrowers would have paid 0.7 percent of the loan amounts to lenders in up-front fees and discount points to obtain the rates.

Freddie's chief economist, Frank Nothaft, said a better-than-expected employment report contributed to the increase.

Government statisticians said 155,000 jobs were added to the labor force in December, and revised November's job growth upward by 24,000 workers, keeping the unemployment rate steady at 7.8 percent, the lowest since December 2008.

The government on Thursday reported an uptick in jobless claims, but the overall picture has improved.

"For all of 2012, 1.86 million jobs were created and represented the largest annual gain since 2006," Nothaft said.

Congress and President Obama also averted a threat to the economy by voting not to let taxes rise on most Americans this year, as they had been scheduled to do under the co-called fiscal cliff provisions that had been set to take effect Jan. 1.

A strengthening economy increases the probability of higher inflation and makes stocks more attractive to investors. Both those factors tend to drive investors out of the market for fixed-income securities, sending bond yields higher.

Fixed mortgage rates tend to track the bond market, especially the yield on the 10-year Treasury note, which had dropped below 1.6 percent in early December but has risen to about 1.9 percent.

Investors had become "complacent" about record low interest rates, said Scott Simon, the head of mortgage securities trading at Pacific Investment Management Co. in Newport Beach, which runs the world's largest bond fund.

Still, Simon said, lenders have been making so much money on mortgages that they won't have to raise their home-loan rates as fast as the yields on Treasuries are rising.

The average 30-year mortgage rate hit a record low of 3.31 percent in late November, according to Freddie Mac, which asks lenders about the terms they are offering to borrowers with solid credit and at least 20 percent down payments or 20 percent equity in their homes if they are refinancing.

Borrowers often find slightly better rates if they shop around, and can reduce the rates by making additional upfront payments called discount points. Third-party charges often paid by borrowers, such as the costs of appraisals and title insurance, are not included in the Freddie Mac survey.