Mortgage Rates in U.S. Rise to Highest in Four Months

Dec. 31 (Bloomberg) -- Mortgage rates in the U.S. rose to the highest since August, raising the prospect that the budding housing recovery will stall as home buying becomes more costly.

The rate for 30-year fixed U.S. home loans rose to 5.14 percent for the week ended today from 5.05 percent, mortgage finance company Freddie Mac said. That’s the fourth consecutive weekly increase. A record low of 4.71 percent was reached in the week ended Dec. 3. This week’s average 15-year rate was 4.54 percent, the McLean, Virginia-based company said today in a statement.

“If you start to see rates heading toward 6 percent, that will create some political attention,” said Donald J. Rissmiller, chief economist at Strategas Research Partners in New York. The important thing to watch is what happens to rates in the period after the holidays, which is usually a slow time for housing sales and refinancing, Rissmiller said.

Rising mortgage rates may hamper the nation’s economy and housing market as it becomes more expensive for consumers to buy homes or refinance existing loans. A Federal Reserve program to purchase as much as $1.25 trillion in securities backed by home loans helped reduce mortgage rates this year. The program is scheduled to end in the first quarter of 2010.

The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy mortgages from lenders and package them into bonds, brought down yields on the securities this year and allowed lenders to reduce mortgage rates while still selling the securities at a profit.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a mortgage fell 11 percent for the week ending Dec. 18, the first decline in a month, as both purchases and refinancing weakened. The Washington, D.C.-based group didn’t issue data for the week ending Dec. 25 because of the U.S. holidays. Its next data release will be Jan. 6 for the prior two weeks.