Derrick Bulaich locked in a home- loan rate of 4.6% last week, prompted by a surge in borrowing costs as investors speculated the Federal Reserve would pull back from bond buying. Bulaich, who said he wishes he’d acted sooner, still plans to complete the purchase today of the four-bedroom Sacramento home because values in the city remain 42% below their 2005 peak despite recent gains.
“I was hoping rates would come back down and then I realized they weren’t going to,” said Bulaich, 24, who works for a bank. “Homes are still affordable, so that takes some of the sting” out of it.
Fed Chairman Ben S. Bernanke said this week that the central bank may scale back its unprecedented stimulus program this year as the economy and housing improve, ending the era of record-low mortgage rates and marking the first test for the year-old housing recovery. While rising costs make purchasing real estate more expensive, the upshot for homebuyers is that banks will need to respond by improving credit availability that has been holding back the market for the past five years.
“If people believe house prices are going up, credit availability will evolve,” said Paul Willen, a senior economist at the Federal Reserve Bank of Boston. “There is too much money to be made lending to homebuyers. Lenders will find a way.”
Mortgage rates in the U.S., after increasing at the fastest pace in a decade, have jumped after Bernanke confirmed on June 19 that the central bank is ready to slow its purchases amid signs of an improving economy and housing market. Wells Fargo & Co., the largest mortgage lender, increased the rate on a 30- year mortgage to 4.5% yesterday from 4.13% on June 18 and 3.88% last month.
The average rate for a 30-year fixed loan climbed to 3.93% earlier this week from 3.35% last month and the record low 3.31% reached in November, according to Freddie Mac.
The prospects of higher rates and the ending of the bond- buying program have sent stock markets plunging around the world. U.S. homebuilders fell 7.1% yesterday after a 3.3% drop the prior day, the biggest two-day plunge in more than a year. PulteGroup Inc., the largest homebuilder by market value, fell 2% at 10:26 a.m. in New York to $18.50 after declining 9.1% yesterday.