Local mortgage activity drops as interest rates rise: But rates still remain historically low

Jun 28, 2009 (The Capital - McClatchy-Tribune Information Services via COMTEX) -- FRE | Quote | Chart | News | PowerRating -- County mortgage brokers said business has leveled off significantly as interest rates rise above 5 percent amid fears of inflation.

According to Freddie Mac, a 30-year, fixed-rate mortgage averaged 5.38 percent last week.

Comparatively, the 30-year rate was 4.82 percent during the week of May 21 and 4.78 the last week in April, the government-run mortgage company reported.

The seemingly inconsequential rise in rates has led to a "screeching halt in activity," locally, said George Matthews, owner of A-1 Mortgage in Annapolis. When rates hovered near 4.7 percent just a few weeks ago, Matthews "didn't have to put bait on the hook," he said.

"At this point, financially it doesn't make sense," Matthews said of consumers seeking to refinance.

Spencer Allen, branch manager for Mpoint Mortgage Services in Crofton, said he, too, has noticed a drop-off. "It's leveled off as the interest rates have gone over 5 and quarter," Allen said. "They were jumping all over the rates when they were under 5."

Mortgage rates

Freddie Mac compiles weekly surveys on mortgage rates. The government-run company puts out its surveys on Thursdays. Here is a look at recent 30-year, fixed-rate mortgage averages:

* Week ending June 18: 5.38 %

* Week ending May 28: 4.91 %

* Week ending May 21: 4.82 %

* Week ending May 14: 4.86 %

* Week ending May 7: 4.84 %

* Week ending April 30: 4.78 %

* Week ending April 23: 4.80 %

-- Source: Freddie Mac

Refinancing activity is very sensitive to movement in mortgage rates, said Greg McBride, senior financial analyst for Bankrate.com.

"When rates go down, even a little bit, prospective borrowers jump off the fence and get into the game," he said. "When rates go up, especially as quickly as they did, it can quickly dilute the attractiveness of refinancing."

Earlier this year, mortgage rates were at record lows, which sparked a refinancing boom, McBride said.

But in recent weeks, mortgage rates spiked upward, along with rates for government bonds and many other debt instruments, McBride said. That rise was caused by concerns over higher inflation that could materialize as a result of the government stimulus spending and borrowing, McBride said.

McBride said the days of 5 percent mortgages may be over, but he noted that "rates will remain very low and continue to bob up and down through the year."

Last year around this time, the 30-year, fixed-rate mortgage averaged 6.42 percent, a Freddie Mac report showed.

Still, the drop-off in business is unwelcome news for area mortgage brokers whose business relies on rates.

Brokers like Matthews said they were inundated with refinancing requests when rates were below 5 percent as consumers sought to shave down mortgage payments.

Matthews said applications were up between March and mid-May when someone could still lock in a rate around 4.75 percent.

"I physically could not keep up with the number of files because there was so much volume," he said.

Matthews expects rates to gravitate back down to 5 percent. In the meantime, "I'm going to kind of be on hiatus for 60 days," he said.

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