US 30-year mortgage rates rise

Inflation fears pushed U.S. 30-year mortgage rates up after being unchanged for three weeks according to Freddie Mac. 30-year fixed-rate mortgages averaged 6.03 percent this week after three straight weeks at 5.88 percent. Rates on 30-year mortgages were last above 6 percent the week of March 16 when they averaged 6.13 percent. One-year adjustable rate mortgages, or ARMs, climbed to an average of 5.29 percent from 5.10 percent. The 15-year fixed-rate mortgage averaged 5.62% this week, up from last week's 5.40% average. The mortgage averaged 5.87% a year ago. And one-year Treasury-indexed ARMs averaged 5.29% this week, up from last week's 5.10% average. The ARM averaged 5.43% a year ago. A separate survey released Wednesday by the Mortgage Bankers Association showed that the volume of mortgage applications filed last week fell 14.2% compared with the week before. Lenders charged an average of 0.3 percent in fees and points on 30- and 15-year mortgages, down from 0.4 percent and 0.5 percent last week, respectively.

Australian mortgage rates Up!

Continuing a damaging trend that has punched holes in homeowners' pockets, the National Australia Bank lifted its variable rates by a further 0.09 per cent on Tuesday. Westpac has announced it is increasing interest rates on home loans because of turmoil on global financial markets.The move comes just a few weeks after the bank lifted its standard variable rate by 0.3 per cent earlier this month, when the Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 7.25 per cent. That focus on advertised interest rates has led many home buyers to switch their mortgage to a fixed rate. Figures from banking analyst Cannex show almost 30 per cent of all owner-occupied home loans were fixed in January, compared with 17 per cent in December 2005.

U.S. mortgage rates rise. Again!

Rates on 30-year mortgages increased this week for the fourth time in the past five weeks. Freddie Mac, the mortgage company, reported Thursday that U.S. 30-year mortgage rates averaged 6.13 percent compared with 6.03 percent a week earlier, while 15-year mortgages rose to an average of 5.60 percent from 5.47 percent. One-year adjustable rate mortgages (ARM) also jumped to 5.14 percent in the week from 4.94 percent a week earlier. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.58% for the week, up from last week's 5.34% average. The ARM averaged 5.90% a year ago. The mortgage rates do not include add-on fees known as points. For 30-year and 15-year mortgages, the nationwide average fee was 0.5 point, while five-year mortgages carried a 0.6 point average fee and one-year mortgages had a 0.7 point average.

real estate foreclosures, which shot up to a record high in the final quarter of last year, are expected to keep rising even with industry and government efforts under way to help people at risk of losing their homes.

UK Mortgage rates rising

Mortgage rates are on the rise, despite the Bank of England’s Monetary Policy Committee (MPC) putting the base rate on hold. Yesterday, Abbey, the UK’s second-largest mortgage lender, announced its second rate rise in eight days. The industry leader, Halifax, and Chelsea Building Society have also increased rates on some of their mortgages. Homeowners that will soon come to the end of their fixed-rate mortgages may be the worst affected. While some people may be able to switch mortgage products, those who are unable to do so may struggle in the current economic climate. Meanwhile the slide in house prices continues with figures from the Halifax showing that values dropped 0.3% in February, the fourth fall in six months. When taking out a mortgage for a new home, people should consider investing in a good self-storage system to protect their belongings.

How much the rates will rise?

The Bank of Canada made it very clear that it is going to raise rates come July 10. The bond market is already anticipating it. In fact, the bond market is already discounting roughly 50 basis points rate hike by September 2007. We had false alarms in the past where the bond market discounted rate hikes only to be proven wrong, with the 5 and 10 year bond rates rising and falling accordingly. But this time it seems that the bond market has a very good reason to predict a rate hike. The Bank of Canada is concerned about inflation (which at 2.5% ) and the fact that the labor market is still very strong. It is very possible that raising rates now will end up to be a monetary policy error with the Bank of Canada probably overshooting. The Bank of Canada appears to be determined to raise rates, and that’s what counts.

How much will rates rise? Here, we have to realize that there are two important factors that should limit the magnitude of any rate hike. It is far from clear that the slump in the US housing market is over. If indeed the housing market continues to slide and the US economy surprises on the downside, then the Canadian economy will feel some of the pain. This also means that the Fed might cut rates by the end of the year, which will make it very difficult for the Bank of Canada to raise rates in an environment of falling US rates. Such a situation will boost the Canadian dollar significantly, with all the negative implications.

It is very important to understand the impact of a stronger dollar on monetary policy. Type A is the good type, in which the dollar rises due to higher commodity prices. The Bank of Canada is not concerned about such appreciation since any damage to the manufacturing sector is being offset by a gain in the commodity sector. Type B appreciation (b for bad) is the one that reflects mainly expectations that Canadian interest rates will rise by more than US rates. In this situation, there is only damage with no positive offset. Clearly, the recent appreciation in the dollar was Type B, something that the Bank of Canada will have to take into account. Another factor to consider is that most of the inflation in Canada is coming from the west. By raising rates too much, the Bank is risking taking Ontario and eastern provinces into a recession.

So, the bottom line is that the Bank will raise rates, but probably not too much. Fifty basis points rate hikes by September is a reasonable guess. This means that the main damage from this point will be in the prime rate, and less in the five year rate. From a practical perspective the mortgage interest rate curve is relatively flat and will remain that way for a while. This means that taking a variable rate mortgage vs. fixed term mortgage will not result in any material savings. And given that there is the risk that the US economy will surprise on the upside, then a risk averse borrower will be probably better off locking now in the current rates.