Economic and housing market recoveries generate higher mortgage rates

Rising home prices and mortgage rates are expected to continue throughout 2013, as strides in the housing market continue to prompt growth in economic factors. Freddie Mac's latest Primary Mortgage Market Survey for the final week of January found that average rates for fixed-rate mortgages increased for the second week in a row, while adjustable-rate averages moved after remaining dormant for two weeks.

According to the survey, the average rate for 30-year FRMs rose above 3.5 percent for the first time since September 2012, reaching 3.53 percent. This is up from the week before when the average was 3.42 percent but the recent average was still lower than the 3.87 percent recorded the same time last year. Throughout the slower season for real estate transactions in the winter and around the holidays, mortgage rates remained near lows that were previously set at the end of November. 

Additionally, the average rate for 15-year FRMs jumped to 2.81 percent from 2.71 percent reported one week earlier. This time a year ago, the 15-year FRM averaged 3.14 percent, signifying affordability is still available for those who didn't make the investment but are looking to do so in 2013.

For two weeks, average rates for ARMs didn't move, but Freddie Mac reported the average rate for 5-year ARMs increased to 2.7 percent from 2.67 percent, pushing it closer to the 2.8 percent average from this time a year ago. The average rate for 1-year ARMs moved forward slightly, rising to 2.59 percent from 2.57 percent recorded the week earlier. 

"Mortgage rates continued to trend upwards this week amid a growing economy led in part by the recovering housing market," said Frank Nothaft, vice president and chief economist, Freddie Mac. "For instance, new home sales totaled 367,000 in 2012, the most in three years and reflected the first annual increase in seven years. Pending home sales in 2012 averaged its highest reading since 2006. And the S&P/Case-Shiller 20-city composite house price index rose 5.5 percent over the 12-months ending in November 2012, the largest annual growth since August 2006. All of these factors helped residential fixed investment to add nearly 0.4 percentage points to real GDP growth in the fourth quarter alone."

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