Mortgage Rates Jump To 7.51%

Soaring interest rates this week dragged mortgages their highest levels since September of 1997, according to two major surveys released Thursday.

Bankrate.com said the 30-year fixed rate rose to 7.5 percent from 7.4 percent, while Freddie Mac listed it at 7.51 percent, up from 7.41 percent a week ago.

"It's a larger increase than we normally see week-to-week," said Frank Nothaft, deputy chief economist at Freddie Mac. "Our expectation at the moment is that we'll probably see the 30-year fixed rate settle in at 7.5 percent, barring any surprises in the price indices."

Bankrate reported the 15-year rate climbed to 7.12 percent, while Freddie Mac reported 7.13 percent, up from 7.04 last week. The one-year adjustable rate rose to 6.07 percent per bankrate.com. Freddie Mac's survey showed the ARM at 5.92 percent, an increase from last week's 5.85 percent.

While rates have steadily gone up for the last five weeks, they are still strong numbers compared to where they've been in the last generation, according to Freddie Mac. Increases in family income and consumer confidence contribute to the good news.

But the menace that lingers in the housing market especially is the specter of inflation. With just two weeks before the Federal Open Market Committee meets to consider tightening monetary policy, investors were skittish in trading today.

Having just weathered a neutral employment report from last Friday, investors are now looking to the next big indicators of core inflation, the producer price index, to be released tomorrow, and the consumer price index, which will be unveiled next Wednesday, he said.

While this week's jump won't have a major impact on housing starts or existing sales, it will take a toll on another sector, according to Nothaft.

"With the uptake in rates, refinancing activity should fall off," he said, adding that it represented two-thirds of the market in October of 1998 and is currently at one-third. "The refinancing part of the market is highly interest rate-sensitive."

The average monthly principal and interest on a $100,000 30-year fixed-rate mortgage rose $7 from last week to $699 and the payment on a 15-year loan rose $3 to $905, according to bankrate.com.

The bankrate.com National Index is based on a Wednesday survey of the 50 largest banks and the 50 largest thrifts in the 10 largest metropolitan areas in the country. These are averages.

Written By Kristen Gerencher