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Mortgage rates jump on economic strength

30-year fixed mortgage rates chart
/ Source: The Associated Press

Mortgage rates climbed this week to their highest levels since early January amid mounting signs that the economy’s recovery is establishing deeper roots.

The average rate on benchmark 30-year, fixed-rate mortgages rose to 5.79 percent this week, up from 5.52 percent last week, mortgage giant Freddie Mac reported Thursday in its weekly nationwide survey of mortgage rates.

This week’s rate was the highest since Jan. 8, when 30-year mortgages averaged 5.87 percent.

Rates for 15-year, fixed-rate mortgages, a popular option for refinancing, increased this week to 5.12 percent, compared with 4.84 percent last week. For one-year adjustable mortgages, rates moved up this week to 3.65 percent, from 3.46 percent. This week’s rates for both 15-year and one-year ARMs also were the highest since Jan. 8.

Signs that the recovery is gaining ground, including a good employment report for March released by the government last week, were factors in pushing bonds rates up, causing long-term mortgage rates to rise, analysts said.

“The bond market reacted to the welcome news last Friday that jobs are finally being created, which is much needed for continued expansion of the economy,” said Amy Crews Cutts, Freddie Mac’s deputy chief economist.

“Mortgage rates again followed the bond market, rising significantly from last week to this week, and spurring speculation that the Federal Reserve will raise rates sooner rather than later,” she said.

The nationwide averages for mortgage rates do not include add-on fees known as points. Thirty-year and 15-year mortgages each carried an average fee of 0.7 point this week, while one-year ARMs carried an average fee of 0.5 point.

This time last year, rates on 30-year mortgages averaged 5.85 percent, 15-year mortgages were 5.17 percent and one-year adjustable mortgages stood at 3.80 percent.

Looking ahead, some economists are hopeful that there will be further improvements in the nation’s employment picture, which would help to offset higher mortgage rates.

David Lereah, chief economist for the National Association of Realtors, is predicting that sales of both new homes and previously owned ones this year will turn out to be the second-highest on record. Home sales last year registered their best year ever.

He predicts rates on benchmark 30-year mortgages will rise slowly this year, reaching 6.4 percent by the end of the year.

“The fundamental demand for housing against a backdrop of an improving economy and mortgage interest rates that remain historically low mean home sales will remain near record levels,” Lereah said.

Rising mortgage rates, meanwhile, are slowing home-mortgage refinancing activity. The Mortgage Bankers Association said refinancing accounted for 57.1 percent of all mortgage applications filed last week. That was down from 62.8 percent the previous week.