March 9, 2006

RATE RISE AGAIN, HELP SLOW HOUSING MARKET

Not since September 2003 has the 30-year fixed-rate mortgage been as high as it is this week and the new highs are contributing to a market slowdown, but not to a bursting bubble. The 30-year fixed averaged 6.37 percent, with an average 0.6 point. Last week the rate was 6.24 percent. Also for the week ending March 9, the average for the 15-year fixed-rate mortage is 6.00 percent, with an average 0.6 point, up from last week’s average of 5.89 percent.

"Stronger than expected gains in the manufacturing and service industries -- coupled with higher labor costs -- ignited inflation concerns, which led to the rise in mortgage rates this week," said Frank Nothaft, Freddie Mac chief economist. “Financial markets are beginning to think that the Fed will hike rates three more times this year, instead of two, putting upward pressure on mortgage rates."

"Although the signs are mixed, the housing industry is now beginning to shift into slower gear, and higher mortgage rates will only strengthen that change. However, we see no signs of a bursting bubble, but rather a return to a more normal pace of activity,” Nothaft added.

Time and MarketWatch both recently ran stories challenging the notion of a bursting housing bubble.

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