Homeowners Put Off by Surge in Mortgage Rates
Homeowners stave off refinancing as mortgage rates take an upwards turn.
May 30, 2009 — -- The sudden spike in mortgage rates this week could derail the fragile improvements that were under way in the housing market, as homeowners and first-time buyers returned to the market to take advantage of mortgage rates that had dropped as low as four and a half percent.
Now, a lot of that activity has simply stopped.
At JBL Mortgage in Millerville, Md., this week, the phones were almost silent. Brian Blonder, JBL's CEO, said that after mortgage rates spiked Wednesday, "those phone calls just stopped."
When JBL was offering mortgage rates around 4.5 percent back in March, the staff was fielding up to 50 calls a day. Today, they're lucky to receive three.
According to Freddie Mac, the average rate for a 30-year fixed mortgage jumped to 4.91 percent this week. That's up from 4.82 percent just a week ago. At some lenders, rates shot even higher, increasing as much as 1 percent.
The jump in mortgage rates came as the yield on the Treasury's 10-year note -- a key benchmark for home mortgages and other kinds of loans -- reached the highest level it has been since November.
Economists said that the concern for the positive signs that had been seen in the economy recently is that rising bond yields could not only continue to push mortgage rates higher, but that it might also raise the cost of borrowing for businesses.
The surge in mortgage rates has effectively slammed the brakes on what was an avalanche of refinancing. According to the Mortgage Bankers Association, applications to refinance dropped 18.9 percent this week.
Some cash-strapped homeowners say they are worried that they've missed their chance to save a bundle.
Homeowner Karl Wenz said he had planned to refinance, but now he said he thinks he might have waited too long.
"I was going to save $325 a month, and that covers all kind of things, from gas to groceries," he said. "$325 is a lot of money."
And economists fear that without those savings from refinancing, one of the main engines for a recovery in consumer spending is now in jeopardy.
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