US mortgage rates rise, may curb demand

U.S. mortgage rates rose in the latest week as Treasury yields climbed, a move that may dampen home loan demand.

Interest rates on U.S. 30-year fixed-rate mortgages averaged 5.29 percent for the week ending Aug. 13, up from the previous week's 5.22 percent, according to a survey on Thursday by home funding company Freddie Mac.

The mortgage rate was also significantly higher than the record low of 4.78 percent set the week ending April 2. Freddie Mac started the Primary Mortgage Market Survey in 1971.

"Long-term fixed-rate mortgage rates rose slightly over the past week while initial rates on adjustable-rate mortgages (ARMs) were little changed," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

Mortgage rates remained above 5 percent for an eleventh straight week. Experts say mortgage rates at 5 percent and below are what is necessary to make a significant impact on home loan demand.

Indeed, higher rates have dampened demand for home loan refinancing, a reversal from earlier this year when rates below 5 percent caused refinancing activity to surge.

Treasury yields, which are linked to mortgage rates, have risen recently, with mortgage rates responding in kind.

The rise in rates is a negative for the U.S. housing market, which has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country.

In fact, home prices in some regions have risen.

Thirty-year mortgage rates had been on a downward trend for most of this year after the Federal Reserve unveiled its plan to buy mortgage-backed debt in late November. But the Fed met resistance in the bond market in recent months.

The U.S. government has embarked on an aggressive plan to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover.

The Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS, $300 billion of Treasuries and $200 billion of agency debt in 2009. The purchases are more than half-way completed and are part of efforts to lower borrowing costs.

The battered U.S. housing market, which has suffered the worst downturn since the Great Depression, is both the source and a major casualty of the credit crisis. A setback for the market could prolong a turnaround for the United States, the world's largest economy.