Mortgage Rates Approaching 5 Percent

The cost of a mortgage continues to climb, but rates still remain near historic lows. The average 30-year fixed rate mortgage is approaching five percent, according to Freddie Mac.

Rates have been climbing for five straight weeks.

The 30-year fixed-rate mortgage (FRM) averaged 4.83 percent with an average 0.7 point for the week ending December 16, 2010, up from last week when it averaged 4.61 percent. Last year at this time, the 30-year FRM was actually higher, averaging 4.94 percent.

The 15-year FRM this week averaged 4.17 percent with an average 0.7 point, up from last week when it averaged 3.96 percent. A year ago at this time, the 15-year FRM averaged 4.38 percent.

Rates began climbing after the market reacted to the Federal Reserve's decision to buy more Treasury bonds. Ironically, that action was aimed at keeping rates low, but bond traders worried that it would lead to inflation, leading to higher rates on bonds.

"Market concerns over stronger economic growth that, in the near term, could lead to an increase in inflation have sparked a rise in bond yields and mortgage rates have followed," said Frank Nothaft, vice president and chief economist, Freddie Mac.

"For instance, the growth in retail sales excluding automobiles in November was twice that of the market consensus forecast. Industrial production showed the biggest gain in November since July, according to the Federal Reserve Board . And consumer sentiment, as measured by the Thomson Reuters/University of Michigan index, rose to a six-month high in December. As a result, interest rates for 30-year fixed mortgages this week were the highest since the week of May 20th of this year."

The Wall Street Journal speculates that the surge in mortgage rates has likely damped a boom in refinancing that began in recent months. At one point, the 30-year fixed rate mortgage hit a record low of 4.17 percent. Today's higher rates have made it less attractive for homeowners to refinance their mortgage.