Sacramento's unsteady housing market could do without higher mortgage rates. But that's what it's getting.
Mortgage rates jumped to an average 6.46 percent for 30-year, fixed-rate loans, up from 6.04 percent last week, mortgage giant Freddie Mac said Thursday. A separate survey by personal finance Web site Bankrate.com pegged current rates at 6.77 percent, up nearly a half point to the highest level they've been all year.
Real estate agents and mortgage brokers said they doubted the spike would smother the fledgling revival in the area's housing market. But they weren't happy about it, either.
"Every time it ticks up, it hurts," said Mike Lyon of Lyon Real Estate in Sacramento. "It's always a big deal."
Still, Lyon and others said the strong demand for homes should continue from bargain hunters taking advantage of the dramatic plunge in Sacramento prices.
"You can get such a deal on a home, we're just swamped," said Jeff Johnson, manager of the Citrus Heights branch of national lender Platinum Home Mortgage.
Ironically, the increase was reported one day after the Federal Reserve, increasingly desperate to rev up the economy, ordered a half-point reduction in rates.
But the Fed move only affected short-term rates, not the long-term rates that determine which way 30-year mortgages will go. And it's possible that the Fed's decision actually helped push up long-term rates.
That's because if the Fed does succeed in breathing new life into the economy, it could mean higher inflation, too. In anticipation of that, lenders will always charge more for long-term loans, said John Knight, professor of finance and real estate expert at the University of the Pacific.
Another factor is the sheer instability in the financial markets. When stock prices were collapsing, investors poured money into long-term, super-safe Treasury bonds, bringing down their yields. Most long-term mortgages are tied to Treasury bond yields. But now that stock prices seem to be stabilizing, investors are moving out of Treasury bonds and back into the stock market, raising the Treasury yields.
Indeed, October was a month of severe mood swings in mortgage rates, reflecting the roller-coaster ride in other financial markets. That might not provide much comfort level for would-be homebuyers.
"Borrowers may get discouraged at times or may have to step out of the market for a while," said Keith Gumbinger, vice president of New Jersey mortgage consultant HSH Associates. "There's a lot of confusion out there, a lot of uncertainty."
This comes as buyers have been rushing into the Sacramento market looking for deals on properties that went through foreclosure. Prices have fallen 48 percent from the 2005 peak, but the volume of sales has tripled from a year ago.
That's not likely to change because rates have risen.
"If you're getting a $100,000 price reduction from a year ago, a half-point increase in the interest rate isn't going to mean that much," said John Arvanitis, president of Sunrise Vista Mortgage Co. in Citrus Heights.
A half-point increase on a $250,000 loan means an extra $80 or so in the monthly payment.
Call The Bee's Dale Kasler, (916) 321-1066.
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