Rise in Rates Won't Slow Home Buying
By Aleksandrs Rozens
NEW YORK (Reuters) - A much better than expected U.S. March employment report sent U.S. interest rates higher on Friday but lenders and industry analysts do not expect the rise in borrowing costs to curb the appetite for home buying.
News that non-farm jobs grew 308,000 in March, nearly three times what economists had expected, brought about massive selling of U.S. Treasury paper in the bond market amid talk the Federal Reserve (news - web sites) will now have room to raise interest rates.
The yield on Treasury 10-year notes -- a close proxy for mortgage rates -- rose to 4.12 percent at midday on Friday, up from about 3.90 percent late Thursday.
As a result mortgage rates for 30-year loans could climb to 5.85 or 5.90 percent in coming days, up from their lows for the year just two weeks ago of 5.53 percent, said Keith Gumbinger, vice president at HSH Associates of Pompton Plains, N.J.
Last year, mortgage rates hit historic lows of 5.37 percent to kick up the busiest year for mortgage lenders. Much of that business was related to home loan refinancings. This year bankers expect to process more loans to actually buy homes.
While costs for home buyers are up, "we are still at tremendously affordable rates," said Amy Crews Cutts, deputy chief economist at Freddie Mac, of McLean, Va., the second-largest U.S. buyer of home loans.
So far this year rates for 30-year mortgages, the most popular home loan, have been below the psychologically important level of 6 percent. This has helped consumers borrow money to buy homes or refinance mortgages to cut costs.
Also, many home owners have taken advantage of the lower rates to squeeze equity from homes through cash out refinancings. This money has been spent on goods and services, helping shore up the overall U.S. economy.
While refinancings have not "gone out of the window," they have fallen from their hectic pace for lenders like John Svirsky of Garrison, N.Y.
For Svirsky, refinancings once accounted for 70 percent of his business but now they make up only 40 percent of loans processed.
"It does deter refinancings ... but it won't have much of a deleterious affect on purchases," Gumbinger said of Friday's rate rise.
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