Speculation that the Federal Reserve will raise short-term interest rates in the near future caused mortgage interest rates to jump this week.
McLean, Virginia-based Freddie Mac officially released its Primary Mortgage Market Survey (PMMS) on Thursday, which shows the 30-year fixed-rate mortgage (FRM) hovering at 6.08-percent during the week ending May 29, 2008, a slight increase compared to its rate of 5.98-percent the week before. The 30-year FRM is still far below last year’s level when it averaged 6.42-percent, according to the latest PMMS.

“Mortgage rates drifted up this week over market concerns that the Federal Reserve Board may raise short-term rates later this year,” said Frank Nothaft, Freddie Mac’s vice president and chief economist. “A recent working paper published by the Federal Reserve Bank of Minneapolis suggested that the recent rate cuts run a risk of unhinging long-term market expectations for inflation. Indeed, market inflation expectations increased over the last few weeks and the federal funds futures market now has a 25-basis point rate hike priced in by the end of the year.”
The 15-year FRM faced a similar fate with the interest rate rising from 5.55-percent last week to 5.66-percent this week.
The PMMS also documented the following changes:
Five-year treasury-indexed hybrid adjustable-rate mortgages (ARMs): 5.62-percent this week, compared to 5.61-percent last week.
One-year Treasury-indexed ARMs averaged 5.22-percent, down from 5.24-percent last week.
Freddie Mac added, “While existing house prices continue to decline, new home sales unexpectedly rose in April and the number of month’s supply of new homes for sale fell from 11.1 months in March to 10.6 months in April. Moreover, the median sales price for new homes rose 1.5-percent in April from the same month in 2007, representing the first yearly increase since November 2007.”