Mortgage rates going up
Higher borrowing costs appear likely to deflate the housing boom and spending -- though not yet in Hawaii
NEW YORK » Hear that hiss? That may be the sound of air starting to come out of the housing bubble.
BY BRYANT FUKUTOMI
Mortgage rates around Hawaii
A look at selected 30-year mortgage rates in the state as of Wednesday. Add-ons called points are not included.
» American Savings Bank: 5.75 percent
» Bank of Hawaii: 5.625 percent
» Central Pacific HomeLoans: 5.75 percent
» Charter Funding of Hawaii: 5.25 percent
» Countrywide Home Loans: 5.75 percent
» Finance Factors: 5.625 percent
» First Hawaiian Bank: 5.75 percent
» Hawaii National Bank: 5.875 percent
» Territorial Savings Banks: 5.625 percent
» Wells Fargo Home Mortgage: 5.75 percent
Yesterday, a survey of housing lenders showed that the rate on 30-year mortgages rose above 6 percent for the first time since March. While it's bounced above that psychologically important threshold a few times in the last year, only to drop back, analysts say this time the direction looks to be headed in one direction -- higher.
For prospective home buyers, that means bidding adieu to rates that hadn't been seen since the president was named Eisenhower and Elvis' music was hitting airwaves for the first time. And these increased borrowing costs are likely to put a brake on the bidding wars that have stoked astounding housing gains and may even slow consumer spending that has fueled economic growth.
Hawaii borrowers, though, may be living on borrowed time. Rates compiled through Wednesday on the Honolulu Board of Realtors' Web site show nearly all of the local lenders below 6 percent and most hovering either just above or under 5.5 percent. Those figures do not include the add-ons known as points.
"I think the news is premature, because our rates haven't gone up over 6 percent yet, but the trend is clearly showing over the last three or four weeks that the rates have been on a steady increase," said Harvey Shapiro, the board's research economist.
But Realtors nationwide have been reporting a decline in demand.
"(The piercing of the 6 percent threshold) is going to definitely cause more of a slowdown," said Brenda Binczewski, a Realtor at Carlson GMAC Real Estate in Palmer, Mass., who said she has seen a drop in business since July and has not had multiple offers for a home in three or four months.
In raising the overnight bank lending rate last month a quarter point to 3.75 percent, Federal Reserve policy-makers expressed their concerns about inflation. And earlier this week, meeting minutes from those Fed officials hinted at more interest rate increases.
These concerns have been noticed in the broader financial markets, especially the U.S. Treasury securities market where interest rates have risen, tugging mortgage rates with them.
According to Freddie Mac, the U.S. housing agency that sells guarantees for home loans, this week's 6.03 percent average for 30-year mortgages is the second-highest level of the year. Thirty-year rates were at 6.04 percent in the week of March 3. The nationwide averages for mortgage rates do not include points.
"The most likely pattern is for mortgage rates to gradually rise over time," said Frank Nothaft, chief economist at Freddie Mac. He added that "will translate into somewhat weaker demand for housing, lower home sales volume and lower house price growth."
Paul Brewbaker, chief economist for Bank of Hawaii, said the rates are higher on the mainland because those lenders have been more aggressive in underwriting loans and are now reining in their risk.
"I don't think that's true here, because I don't think in Hawaii, as a generalization, that local lenders ever went that far out in the risk spectrum of mortgage home lending," he said.
Brewbaker also pointed out that long-term benchmark rates like the yield on the 10-year U.S. Treasury note actually have been higher at least twice in the last two years than they are today. The yield closed yesterday at 4.47 percent.
"The difference is that on those occasions the mortgage rates didn't go over 6 percent," Brewbaker said. "Lenders on the mainland, and not so much in Hawaii, are beginning to dial up a little of the credit-risk premium. Borrowers are going to find it a little more costly going forward, because consumer debt has risen so much and because home-equity lending as a proportion of household wealth has gone up a lot."
In its survey, Freddie Mac found that adjustable rate mortgages, which are linked to one-year Treasury rates, were offered at 4.85 percent this week, up from 4.77 percent a week ago. Further interest rate increases by the Federal Reserve, which are expected, probably will push ARM rates even higher, analysts said.
Star-Bulletin reporter Dave Segal and Associated Press economics writer Martin Crutsinger contributed to this report.