The average interest rate on 30-year, fixed-rate mortgages rose above 7 percent this week, the highest level in nine months, Freddie Mac, the mortgage company, said Thursday.
The average increased for the fifth consecutive week to 7.06 percent, the highest level since the end of May. It had been 6.89 percent the previous week.
The increase, if sustained, will slightly cool home sales and sharply reduce mortgage refinancing, a key support for consumer spending during the past year, analysts said.
"New cash flows from refinancings have been a significant source of consumer spending but I don't think it will be there this year," said economist Sung Won Sohn of Wells Fargo & Co. in Minneapolis.
The average reached a 31-year low of 6.49 percent in early October as worried investors worldwide poured their money into U.S. financial markets. That helped send sales of both new and existing homes to record highs last year.
Even with the recent climb, the average remains low by historical standards, said Freddie Mac economist Robert Van Order.
"Interest rates will probably be even higher in next week's survey," he said. "That said, It's good to remember that even with interest rates at higher levels ... we are still experiencing rates that are comparable to the very early 1970s."
Fifteen-year mortgages, a popular option for refinancing, averaged 6.70 percent this week, the highest since mid-June and up from 6.51 percent last week.
On one-year adjustable-rate mortgages, lenders were asking an average initial rate of 5.74 percent, up from 5.71 percent the previous week and the highest in 21 months.
The rates do not include add-on fees known as points, which averaged 1 percent of the loan amount for each type of mortgage.
Written By DAVE SKIDMORE, Associated Press Writer