The average rate on a 30-year mortgage zoomed past 5% this week, reaching the highest level in nine months.
Home-loan rates have been surging since November, tracking yields on Treasury bonds, as the economy has shown increasing signs of strength.
This week, lenders have been offering 30-year fixed-rate home loans at an average of 5.05% to low-risk borrowers willing to pay an upfront fee equal to 0.7% of the loan balance, Freddie Mac said Thursday.
The rate was up from a record low 4.17% in November — and up nearly a quarter-point from last week's 4.81% average. The average is at its highest level since a 5.06% reading in late April. Last year at this time, it was 4.97%.
The higher rates are greatly reducing the number of home refinancings and also may be helping to slow the pace of mortgages being taken out to finance home purchases.
"People who wish they'd refinanced are asking me to let them know when they go down again," Santa Cruz mortgage broker Peter Ogilvie said. "That 4 at the front of the rate is the magic number."
Total applications for home loans last week dropped 5.5% from the week before, the Mortgage Bankers Assn. said Wednesday. Refinance applications were off 7.7%, while applications for purchase loans fell 1.4%.
"Incoming economic indicators continue to show stronger growth than had been anticipated," said Michael Fratantoni, an economist at the mortgage bankers trade group. "We are at the beginning of the spring buying season, but purchase volume remains weak."
Ogilvie said he hasn't seen many borrowers lose out on buying homes because of rising rates. But hybrid loans that become adjustable after five, seven or 10 years at a fixed rate are becoming more popular, he said, because buyers can still qualify at start rates less than 5%.
Most home loans these days except for "jumbo" mortgages are packaged into bonds for sale to investors by Freddie Mac, its sister company Fannie Mae or other government-controlled entities.
As the economic recovery strengthens, buyers of such bonds and other fixed-income securities are demanding higher yields to compensate for the possibility that a resurgence of inflation could cut into their interest earnings.
Such concerns are emerging despite comments by Federal Reserve Chairman Ben S. Bernanke, who told Congress this week that he expected inflation to remain under control.
Fixed home loan rates tend to track the yield on the 10-year Treasury note, which climbed above 3.6% this week after falling below 2.4% just four months ago.
The average rate on 15-year fixed-rate mortgages rose to 4.29% this week from 4.08% last week, with 0.7% in upfront fees, Freddie Mac said. A year ago, the 15-year loan, favored by many home refinancers, averaged 4.34%.
Rates also moved higher for variable mortgages that adjust annually and hybrid loans that become variable after five years at a fixed rate, Freddie Mac said.
Freddie Mac's weekly survey asks lenders for rates they are offering to borrowers with down payments of at least 20%, or that percentage of home equity in the case of refinancings.