June 27, 2013 Updated: June 27, 2013 at 5:15 pm
WASHINGTON - U.S. mortgage rates suddenly jumped from near-record lows and are adding thousands of dollars to the cost of buying a home.
The average rate on the 30-year fixed loan soared this week to 4.46 percent, according to a report Thursday from mortgage buyer Freddie Mac. That's the highest average in two years and a full point more than a month ago.
The surge in mortgage rates follows the Federal Reserve's signal that it could slow its bond purchases later this year. A pullback by the Fed would likely send long-term interest rates even higher.
In the short run, the spike in mortgage rates might cause more people to consider buying a home soon. Rates are still low by historical standards, and would-be buyers would want to lock them in before they rise further.
But eventually, more expensive home loans could price some people out and slow the housing market's momentum, which has helped drive the U.S. economy over the past year.
Joe Clement, broker/owner of Re/Max Properties in Colorado Springs, said many buyers who missed out on rates around 3.5 percent now want to secure a loan while rates are in the neighborhood of 4 percent - and don't want to see them jump to 5 percent.
"It's been a little bit of a push to get people off the fence," Clement said of the increase in rates. "It's actually good to let people know that, hey, this can't last forever. It's not going to last forever."
Mortgage rates are rising because they tend to track the yield on the 10-year Treasury note, a benchmark for most long-term interest rates. The 10-year yield began rising from near-record lows in May after speculation grew that the Fed might be closer to reducing its bond purchases.
In early May, the average rate on a 30-year mortgage was 3.35 percent, just above the record low of 3.31 percent.
But rates began to surge - and stocks plunged - after Fed Chairman Ben Bernanke made more explicit comments last week about the Fed's plans. He said the Fed would likely scale back its bond buying later this year and end it next year if the economy continued to strengthen.
The rate on a 30-year loan soared from 3.93 percent last week to 4.46 percent this week - the biggest one-week jump in 26 years.
The effect on buyers' wallets in just the past two months is striking.
A buyer who locked in a 3.35 percent rate in early May on a $200,000 mortgage would pay $881 a month, according to Bankrate.com. The same mortgage at a 4.46 percent rate would run $1,008 a month.
The difference: $127 more a month, or $45,720 over the lifetime of the loan. Those figures don't include taxes, insurance or initial down payments.
Harry Salzman, owner of Salzman Real Estate Services Ltd. in Colorado Springs, said he's received calls from anxious buyers as rates have risen. But he said there's no reason to panic. At a rate of 4.5 percent, homes remain very affordable for many people and a better deal than renting a house or an apartment.
"It's still a grand slam, and it's still cheaper to own than rent," Salzman said. He added: "The bottom line of this is I don't think it's something to be that concerned about in our local market, even if at this interest rate today."
Clement agreed, saying there still are good deals to be had, although higher mortgage rates will mean that some buyers won't be able to afford as much home as they hoped for or in the neighborhood they wanted.
But if rates climb several percentage points, the local market likely will see a slowdown, Clement added.
"If we started getting near that average of 7 or 7 1/2 (percent)," Clement said, "I think that's going to be a serious problem. Hopefully we won't even get anywhere near it. But I would think if we did get back toward that average, that 30-year average, we would have some issues."
The rate hike comes at a critical time. Low mortgage rates have helped fuel a housing recovery that has kept the economy growing modestly despite higher taxes and steep federal spending cuts. In May, completed sales of previously occupied homes surpassed the 5 million mark for the first time in 3+ years. And those sales could rise further in June because the number of people who signed contracts to buy homes rose last month to the highest level since December 2006.
The average rate on a 15-year fixed mortgage, a popular refinancing instrument, soared this week to 3.50 percent - its highest point since August 2011 - from 3.04 percent last week.