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3 Reasons Mortgage Rates Are Rising

Written by: Brian O'Connell 08/27/12 - 1:11 PM EDT

NEW YORK (BankingMyWay) -- Mortgage rates are up for the fourth week in a row, and that has inquiring minds asking one big question:

Is the most attractive interest rate environment in history coming to an end?"

The latest numbers from Freddie Mac reveal that 30-year fixed mortgage interest rates are still well under 4%, at 3.66% last week.

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The BankingMyWay Weekly Mortgage Tracker has the average 30-year rate at 3.75% this week.

Nevertheless, this is a trend that has economists taking a closer look.

Freddie not only says fixed-mortgage rates are up for the fourth straight week, the mortgage giant also says that the rate of new single-family home construction is at a five-month low. That means less new homes on the market, with higher rates on the ones that are available for homebuyers.

"Fixed mortgage rates inched upward this week along with other long-term yields," says Frank Nothaft, chief economist at Freddie Mac.

  • Freddie Mac noted Census Bureau data showing residential building permits moving up in July, although builders slowed the pace of construction starts on one-family homes in July to the least since March.
  • Apartment and condominium building picked up to the most since April.
  • Existing home sales rose in July from June's eight-month low and the median sales price jumped 9.4% from a year earlier, representing the largest 12-month gain since January 2006. The price gain was broad-based, with annual increases registered in all four regions of the U.S. and led by a 24.5% increase in the Western U.S.

    • What's driving interest rates up? Here are three significant triggers:

    1. Treasury bond yields are up

    As Nothaft notes, bond yields are up of late, with 10-year U.S. Treasury notes yielding 1.68% in the past week, up from 1.5% at the beginning of August. While these rates are relatively low in a historical sense, mortgage rates do track the direction of Treasury rates, and right now, those rates are moving upward.

    2. Housing data has improved

    Freddie Mac also notes that existing home sales are climbing, after months of soft sales activity. In addition, the median home sales price has risen 9.4% from July 2011 to July 2012. In general, the healthier the housing market, the more interest mortgage lenders charge for home loans.