- The Washington Times - Thursday, October 13, 2005

NEW YORK (AP) — Americans might have seen the last of long-term mortgage rates below 6 percent, and borrowing costs for home buyers likely will continue to climb, slowing frenetic demand that has stoked the U.S. housing market in recent years.

A survey of lenders from Freddie Mac yesterday found that rates for popular 30-year mortgages have crested 6 percent for the first time since March.

“The most likely pattern is for mortgage rates to gradually rise over time. It is likely that they’ll hover at 6 percent or just a bit over,” said Frank Nothaft, chief economist at Freddie Mac.

He said that “will translate into somewhat weaker demand for housing, lower home-sales volume and lower house-price growth.”

Douglas Duncan, chief economist at the Mortgage Bankers Association, an industry trade group, said that “because of increased concerns about inflationary pressures, [mortgage rates] will stay above 6 percent.”

In raising interest rates last month, Federal Reserve policy-makers expressed their concerns about inflation. Earlier this week, meeting minutes from those Fed officials hinted at more interest rate increases.

These concerns have been noticed in the broader financial markets, especially the U.S. Treasury securities market, where interest rates have risen, pulling mortgage rates with them.

According to Freddie Mac — the McLean, Va., housing agency that guarantees home loans — this week’s 6.03 percent rate for 30-year mortgages is the second-highest level of the year. The last time 30-year rates were this high was the last week of March, when rates reached 6.04 percent.

This week also marks the third time this year that mortgage rates rose above 6 percent — an important psychological barrier. When rates were below 6 percent, they helped spur home buying and refinancing of home loans that allowed Americans to spend their way out of the most recent economic downturn.

Low mortgage rates have supported consumer spending on goods and services — which account for two-thirds of the nation’s gross domestic product — because low borrowing costs allowed homeowners to draw money from properties that had appreciated in value.

Also, the steady increase in borrowing costs is sure to limit home price appreciation because buyers won’t be so eager to bid up prices on homes for sale.

“It is going to definitely cause more of a slowdown,” said Brenda Binczewski, a Realtor at Carlson GMAC Real Estate in Palmer, Mass. Ms. Binczewski said she has seen a drop in business since July and has not received multiple offers for a house in three months.

Mr. Nothaft said he does not expect a sharp drop in home prices or home sales because the rise in mortgage rates has been gradual.

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