Jul 22, 2009
Despite the federal government’s best efforts to lower borrowing costs, the US mortgage rate rose to 5.2 percent, the first time in about a month. According to Freddie Mac, the average 30-year rate went up to 5.2 percent from 5.14 percent.
Mortgage rates are actually at its lowest point since May a week ago. It was lowered by the Federal Reserve’s $1.25 trillion package that was set aside for buying mortgage-backed securities. The low rates boosted purchase and refinancing applications from aspiring home owners. However, the record-low of 4.78 percent was actually in April, twice, because of the Central Bank’s announcement to boost spending on Treasuries and mortgage securities.
According to a senior economist from the Huntington National Bank, George Mokrzan, if the increase becomes too big, the recovery of the housing industry will be threatened. Delinquent mortgages were the prime culprit in the global financial crisis; it has cost firms around $1.5 trillion in asset writedowns and losses.
With the government’s push for recover, a lot of positive developments are being seen in the market. For the third consecutive month, the number of home resales increased last June because of lower borrowing cost, significant tax benefits, and even dramatic declines in home prices.
Increase in Home Purchases
The National Association of Realtors has many reasons to be happy these days. The number of home purchases increased to 3.6 percent (4.89 million) despite the still-gloomy economic condition. This is the highest level since October. However, median prices have fallen to 15 percent. Still, Mokrzan said that “overall, it’s positive”. The industry will bottom out this year and recovery will start.
Given all these developments, it is easy to pinpoint to source of the increase in mortgage rate. If borrowing costs were controlled because of government intervention, it seems that this is also becoming the reason why it’s not increasing. Investors are concerned that the high level of government debt will fuel inflation. It counters the sign that the housing market is stabilizing; and if it goes uncontrolled, it might become more damaging to the economy.
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