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WASHINGTON -- Long-term U.S. mortgage rates leaped this week to their highest levels in seven years on global anxiety over rising interest rates that has gripped financial markets.

The average rate for a 30-year fixed mortgage was 4.9 percent, up from 4.71 percent last week and the highest since mid-April 2011, Freddie Mac said in a statement Thursday. A year ago, it stood at 3.91 percent.

It was the biggest increase since Nov. 17, 2016, when the 30-year average surged 37 basis points. The average 15-year rate climbed to 4.29 percent from 4.15 percent, the McLean, Va.-based mortgage finance company said.

Rising mortgage rates have cut into affordability for buyers, especially in markets where home prices have been climbing faster than incomes. That's led to a slowdown in sales. Contracts to buy previously owned properties in the U.S. declined in August by the most in seven months, according to data from the National Association of Realtors.

"Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand," Freddie Mac chief economist Sam Khater said in the statement. While rates are still historically low, "the primary hurdle for many borrowers today is the down payment, and that is the reason home sales have decreased in many high-priced markets," he said.

With this week's jump, the monthly payment on a $300,000, 30-year loan has climbed to $1,592, up from $1,424 in the beginning of the year, when the average rate was 3.95 percent.

The Federal Reserve recently signaled its confidence in the economy by raising a key interest rate for a third time this year, forecasting another rate increase before year's end.

It was the central bank's third increase in short-term interest rates this year, with one more expected before year's end. Strong economic data and a positive outlook from Fed officials have spurred a sell-off in U.S. Treasury bonds, especially longer-term bonds, stoking concerns over even higher interest rates.

As anxiety over higher rates spiraled, financial markets around the world suffered a sell-off. U.S. stocks on Wednesday marked their biggest drop since February, as the Dow Jones industrial average slid 831 points. Stocks sank again on Wall Street on Thursday, with the Dow dropping more, almost 550 points. The S&P 500 Index fell more than 2 percent for a second-straight day and is now in its longest slide since 2016.

President Donald Trump stepped in to say the Fed "is making a mistake" with its rate increases and accused the central bank of having "gone crazy." He continued the criticism on Thursday, calling the Fed "out of control."

Interest rates on Treasury bonds have climbed to the highest levels in seven years as their prices have dropped. The yield on the key 10-year Treasury note, which tends to influence mortgage rates, was at 3.16 percent Thursday morning.

To calculate average mortgage rates, Freddie Mac, the Federal Home Loan Mortgage Corp., surveys lenders across the country between Monday and Wednesday each week.

"Strong employment and payroll data releases met analysts' expectations, providing more evidence of a booming U.S. economy," said Aaron Terrazas, senior economist at Zillow. "Markets tend to move in fits and spurts, with sharp movements often followed by brief retreats, as we've seen over the past few days. But there is no doubt that the trend is decisively higher, and comments from several Fed officials bolstered the notion that the American economy can withstand higher rates."

Mortgage rates are influenced by many factors but significantly by investors' expectations. A strong economy tends to cause home loan rates to increase. One way analysts predict where rates are headed is to track the movement of long-term bonds, particularly the 10-year Treasury.

When yields go up, mortgage rates tend to follow, and the yield on the 10-year bond has been on an upswing recently. It grew to 3.23 percent Oct. 5, rising 14 basis points since the start of the month. It has retreated the past couple of days.

The last time the yield on the 10-year Treasury was this high, mortgage rates were around 5 percent. Danielle Hale, chief economist at Realtor.com, expects rates to rise to that level next week.

The slowdown in the housing market is reflected in mortgage application activity, which fell off this week, according to the latest data from the Mortgage Bankers Association. The market composite index -- a measure of total loan application volume -- declined 1.7 percent from a week earlier. The refinance index fell 3 percent from the previous week, while the purchase index slid 1 percent.

Yet, Bob Broeksmit, the association's president and chief executive, remains optimistic.

"In the face of higher borrowing costs and home prices, prospective buyers are showing resilience," he said. "For eight straight weeks, purchase applications have trended slightly higher than year-ago levels, with more room to grow if entry-level supply conditions improve."

Information for this article was contributed by Prashant Gopal of Bloomberg News; by staff members The Associated Press; and by Kathy Orton of The Washington Post.

Business on 10/12/2018

Print Headline: Rate rises to 4.9% on 30-year mortgages, highest in 7 years

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