Mortgage rates rose at the highest rate in three decades this week as senior Federal Reserve officials attempted Thursday to calm investors’ nerves about when the central bank will begin to taper its bond-buying program this year.
Rates have been climbing steadily since May but leapt to 4.46 percent this week, up half a percentage point and crossing the 4 percent mark for the first time since March 2012, according to data released Thursday by Freddie Mac.
This comes as economists and the Federal Reserve are becoming concerned that rising mortgage costs could destabilize the housing market — one of the few bright spots in the economic recovery.
Two senior Fed officials suggested Thursday that the markets overreacted to comments from Chairman Ben S. Bernanke last week that the central bank could begin scaling back its $85 billion bond-buying program at the end of the year.
That contributed to a small decline in bond yields, which could translate into slightly lower mortgage rates in the days ahead.
“Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” said Jerome Powell, a Fed governor speaking at the Bipartisan Policy Center. William Dudley, president of the Federal Reserve Bank of New York, made similar comments, suggesting a concerted effort by the Fed to dampen expectations that the Fed’s easy-money policies will end soon.
In a growing economy, rates are supposed to rise, and they are still low by historical standards. But this week’s jump shows that the Fed’s mixed messages are the driving factor, analysts said.
“It’s unclear right now how much[the rise in rates] is a step up of the level or how much is just uncertainty,” said Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association.
In the short term, the rate increases could accelerate competition in an already hot housing market that’s had double-digit price increases for nearly a year. But the higher costs may push homeownership out of reach for others.
It is already proving costly for potential buyers like Carolann Haley.
When Haley began shopping for a home three weeks ago, banks offered her a loan with a 3.8 percent rate. But by the time she was ready to put in an offer for a condominium in Reston, the price had risen to a 4.6 percent rate.
That’s an extra $105 a month on her mortgage payment.
“My monthly payments are very important to me,” Haley said. “This started as financially feasible, and now I can’t believe this is happening to me.”
Other parts of the market are also feeling the effects of weeks of rising rates.
The number of mortgage applications and refinancing applications dropped to their lowest levels in two years, decreasing 3 percent and 5 percent from last week, according to the Mortgage Bankers Association. Refinancing applications have plunged more than 40 percent since May.
Kathryn Joseph, senior mortgage banker at Apex Home Loans in Rockville, said some clients have decided that refinancing no longer makes financial sense. They are holding off in the hopes that rates will fall, which may not happen, she said.
“There’s no value to refinancing for most people once rates are in the fours,” she said.
A strong unemployment report next week could help offset concerns about rising mortgage rates, analysts said. Economists expect the rate to fall a notch to 7.5 percent, down from 7.6 percent in May.
“We’ve had low mortgage rates for years, but when the economy stinks, nobody wants to buy a house,” said Greg McBride, a senior financial analyst at Bankrate.com.
The 15-year fixed-rate mortgage rate increased to 3.5 percent, up from 3.04 percent last week, according to Freddie Mac. Hybrid adjustable-rate mortgages also rose: The average five-year ARM increased to 3.08 percent from 2.79 percent last week, while the one-year ARM averaged 2.66 percent, up from 2.57 percent.
Neil Irwin contributed to this report.