Mortgage rates for U.S. loans increase the most in 26 years

Mortgage rates for 30-year U.S. loans surged to the highest level in almost two years, increasing borrowing costs at a time when the housing market is strengthening and prices are jumping.

The average rate for a 30-year fixed mortgage rose to 4.46% from 3.93%, the biggest one-week increase since 1987, McLean, Virginia-based Freddie Mac said in a statement. The rate was the highest since July 2011 and above 4% for the first time since March 2012. The average 15-year rate climbed to 3.5% from 3.04%.

The increase, sparked by expectations that the Federal Reserve will scale back bond purchases, provides a test for a yearlong housing recovery that’s been fueled by home-loan costs near record lows. Buyers seeking to take advantage of low rates are competing for a tight inventory of listings, driving up values. House prices in 20 U.S. cities rose 12% in April, the biggest year-over-year gain since March 2006, according to S&P/Case-Shiller data released this week.

Higher mortgage rates are “not going to snuff out the housing recovery,” Paul Diggle, property economist for Capital Economics Ltd., said yesterday in a telephone interview from London. “But it’s another reason to expect a slowdown from the very rapid rate of price rises of late.”

Fed Comments

Capital Economics yesterday increased its 2014 mortgage-rate forecast for 30-year loans to 5% from a previous estimate of 3.75%. The rate, which has jumped from 3.35% in early May, leaped after Fed Chairman Ben S. Bernanke said last week that policy makers may slow bond purchases this year amid signs of an improving economy.

At the current rate, the monthly payment on a $300,000 30-year loan has increased to $1,513 from $1,322 in May.

Prospective homebuyers may be rushing to make deals. Contract signings to buy previously owned homes climbed 6.7% in May to a six-year high, suggesting rising mortgage rates may be providing a “spark,” the National Association of Realtors said today.

Borrowing costs are still relatively low. The average rate for a 30-year mortgage over the past 10 years is 5.31%, according to data compiled by Bloomberg.

During the housing market’s boom, existing-home sales reached a peak annual pace of 7.25 million in September 2005 with 30-year mortgage rates at about 5.8%. Home sales last month, with rates below 4%, were at a pace of 5.18 million.

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