Fixed mortgage rates rise slightly

After two consecutive weeks of stagnation, fixed mortgage interest rates rose slightly in the current period, as investors turned their attention from Europe's sovereign debt crises to the rising U.S. stock market.

The benchmark 30-year fixed-rate mortgage rose 2 basis points this week, to 4.97 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.44 discount and origination points. One year ago, the mortgage index was 5.13 percent; four weeks ago, it was 5.02 percent.

The benchmark 15-year fixed-rate mortgage fell 1 basis point to 4.28 percent. The benchmark 5/1 adjustable-rate mortgage fell 2 basis points to 3.84 percent and the jumbo 30-year fixed rose 2 basis points, to 5.53 percent.

The hot stock market has excited investors, who have begun to move money out of conservative bonds into riskier equities, explains Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, Calif. As money exits the bond market, demand for those instruments falls and, inversely, yields rise. So do rates.

The stock market has been on a steady upswing since July, when the Dow Jones Industrial Average bottomed out below 10,000. Recently, the Dow has flirted with 12,000. The Standard & Poor's 500 Index has tracked a similar path, climbing from barely above 1,000 in July to almost 1,300 in recent sessions. Ditto the NASDAQ Composite Index, dipping in July, topping up today.

Inflation, whether real or feared, is also putting upward pressure on rates. Consumers have already experienced price hikes in food and fuel at the retail level, though macroeconomic reports haven't yet picked up that trend, Ogilvie said.

"As the economy begins to improve," he said, "people will feel confident that they can get jobs and things will start to move and rates will continue to climb. I don't think rates will get really high, but the general direction is now up."

The big unknown is whether the economy will continue to pick up steam or run out of gas. If the recovery falters, that could keep interest rates range bound, as they have been, a while longer, said Michael Becker, a mortgage banker at Happy Mortgage in Lutherville, Md.

Becker's observations tend to suggest a slower pace. So far, he said, "a huge part" of the recovery has been U.S. government fiscal and monetary stimulus, not sustained consumer and business spending.

Consumer credit, which contracted throughout 2009, began to expand modestly in October and November, according to the Federal Reserve, but Becker thinks credit could shrink again, now that consumers have concluded their holiday spending.

"You can have food inflation and deflation of assets. The inflation is the result of the easy money policies of the Fed," Becker said. Together, the upward and downward pressures create uncertainty about what will happen when mortgage interest rates get pushed out of their current range.

For borrowers, the answer could mean an affordable interest rate -- or higher housing costs.