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Previous Break on Rates Proves Short-Lived

NOV 27, 2013 12:35pm ET
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Mortgage rates in the U.S. rose, increasing borrowing costs as home prices extend their gains.

The average rate for a 30-year fixed mortgage was up seven basis points from the previous week at 4.29%, Freddie Mac said in a statement Wednesday. The average 15-year rate increased three basis points to 3.3%.

While housing demand remains strong, price growth will begin to ebb in part because of tight credit, sluggish income growth and mortgage rates that are higher than a year ago, said Stephanie Karol and Patrick Newport, U.S. economists at IHS Global Insight in Lexington, Mass.

“These conditions present temporary challenges for the housing market,” Karol and Newport said Tuesday in a research note. “We expect home prices to decelerate, but growth should continue into next year.”

Home prices jumped more than 13% in the year through September, according to the S&P/Case-Shiller 20-city index, released Tuesday. The gauge is a lagging indicator because it’s based on contracts signed months earlier.

The Federal Housing Finance Agency said values climbed three tenths of a percent in September, the smallest monthly gain in a year.

Price increases and a jump in borrowing costs to a two-year high in August have caused some would-be buyers to hold back. Contracts to buy previously owned U.S. houses dropped for a fifth straight month in October, the National Association of Realtors said last week.

The 30-year average was slightly less than a percentage point lower a year ago, close to a record low, according to Freddie Mac data. It was close to one-third of a percentage point higher in August, when the 30-year rate was at its highest point since July 2011.

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