Aslump in government-backed mortgage bonds that has sent yields to the highest level since May is threatening a recovery in the U.S. housing market, which had been bolstered by record-low borrowing costs. Yields on Fannie Mae-guaranteed securities that most affect loan rates jumped to 4.22 percent during Tuesday trading in New York, an increase of more than 1 percentage point from a record low in October, according to data compiled by Bloomberg. Higher loan rates “won’t be fun” for a fragile housing market, said Scott Simon, head of mortgage bonds at Newport Beach, Calif.-based Pacific Investment Management Co., manager of the world’s biggest bond fund. “If you were looking at buying a house a few weeks ago, the same house, to you, looks as much as 9 percent more expensive,” he said.
Investors in agency mortgage securities have suffered during this month’s crash in bond prices amid speculation that President Obama’s agreement to extend and expand tax cuts will bolster growth and inflation. While the drop hasn’t been as severe as for Treasuries, the effects of higher mortgage rates, along with climbing gasoline prices, will offset much of the tax package’s intended stimulative effects, according to Gluskin Sheff & Associates Chief Economist David Rosenberg.
The average rate on a typical 30-year fixed-rate mortgage has climbed for four weeks, to an average of 4.61 percent last week, according to Freddie Mac, pushing the monthly cost of a $300,000 loan to $1,540, from $1,462. The rate had dropped to a record low 4.17 percent in the week ended Nov. 11 amid speculation that a bond-purchasing program by the Federal Reserve would restrain yields.
