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Mortgage Rates Spike on Weak Market, Inflation Fears

Rates get more costly as housing prices drop

July 25, 2008

The average for the 30-year fixed-rate mortgage (FRM) rose to 6.63 percent with an average 0.6 point from 6.26 percent last week. A year ago at this time, the 30-year FRM averaged 6.69 percent.

The 15-year fixed-rate loan averaged 6.18 percent this week with an average 0.6 point, up 40 basis points from last week's 5.78 percent. The 15-year FRM averaged 6.37 percent a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.16 percent this week, with an average 0.7 point, up from last week when it averaged 5.80 percent. A year ago, the 5-year ARM averaged 6.30 percent.

The average for the one-year Treasury-indexed ARMs was 5.49 percent this week with an average 0.5 point, compared with last week's averaged of 5.10 percent. At this time last year, the 1-year ARM averaged 5.69 percent.

"Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve (Fed) will raise short-term rates this year all combined to push mortgage rates higher this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Some of the key drivers to these concerns were consumer prices jumping 1.1 percent (annualized) in June -- the largest increase since September 2005 on a year-over-year basis -- coupled with consumer prices growing at a 5.0 percent clip (on a year-over-year basis), the strongest since February 1991.

Additionally, home prices fell 4.8 percent between May 2007 and 2008, according to the Office of Federal Housing Enterprise Oversight's monthly house price index. And new construction of one-unit homes fell to 604,000 units (annualized) in June, the slowest pace since January 1991.

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