THE interest on a 30-year fixed-rate mortgage has risen to its highest level in eight months on concern that the Federal Reserve's next move will be to stem inflation.
The 30-year fixed-rate mortgage last week averaged 6.32 percent with a 0.7-percentage-point fee, an increase over the previous week's 6.09 percent, according to McLean, Virginia-based Freddie Mac, which is the second-largest American mortgage-finance company.
It's the highest rate since October 25, when the average was 6.33 percent, Bloomberg News reported.
The worst United States housing slump in 70 years spurred the central bank to lower its target rate seven times since September, to 2 percent from 5.25 percent.
Federal Reserve Chairman Ben S. Bernanke said during the week that policy makers will now turn their focus to resisting inflation, suggesting that they will either keep the rate where it is or raise it.
"If the Fed is going to aggressively start hiking rates to offset inflation, that's bad news on the credit front," said Scott Anderson, senior economist with Wells Fargo & Co in Minneapolis. "The market is pricing in significant rate hikes from theFed before the end of the year and that's having a major impact on mortgage rates."
Last year, a 30-year fixed-rate mortgage averaged 6.74 percent, Freddie Mac said. The 15-year fixed-rate mortgage averaged 5.93 percent with a 0.6-point fee, also the highest since October 25.
"Mortgage rates will be higher in the future," Anderson said. "We could be up another 20 or 30 basis points next year if the Fed keeps talking like that." One basis point equals 0.01 percentage point.
Almost two-thirds of US banks have raised standards for mortgages to their most creditworthy borrowers, and three-fourths made it more difficult for people with limited or bad credit to get loans, according to a Federal Reserve survey of senior loan officers published last month.
Eighteen percent fewer mortgages will be written this year compared with last, according to a June 11 report by the Washington-based Mortgage Bankers Association.
At least 100 mortgage companies have suspended operations, closed or sold themselves since the start of 2007, according to data compiled by Bloomberg News.
Central bankers "will strongly resist an erosion of longer-term inflation expectations," Bernanke said on June 9 at the Boston Fed's annual economic conference in Chatham, Massachusetts.