Info on mortgage rates: Last week on the eve of the spring buying season, mortgage rates hit records unseen since July 2002, according to a survey of lenders. The rise may limit how much money some home buyers can borrow and could force some sellers to reduce prices.

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Rates for 30 year mortgages, the most common type of home loan, rose to an average 6.42% last week, according the Mortgage Bankers Association which surveyed 18 lenders, representing half of all loan applications received by lenders who work directly with consumers. The 6.42% rate is a high not seen since July 5, 2002 when the 30 year mortgage rate averaged 6.46%.

Fifteen year mortgage rates rose to an average 6.06%, a level not seen since June 7, 2002.

Rates for adjustable mortgages, a popular loan for first-time buyers, have raised sharply in recent months, with an average last week of 5.64%.

Federal Reserve interest rate hikes and the rise in borrowing costs came at a worse time for the housing industry, which has many new and previously owned homes for sale.

The busiest time of the year for home sales is spring, when many families look to buy a home and relocate before school season resumes.

Rates for mortgages have climbed steadily in recent weeks amid signs of strength in the U.S. economy, most notably the February employment report and signs of resilience in manufacturing and service industries.

According to Douglas Duncan, chief economist at the Mortgage Bankers Association, the 30 year mortgage rates likely won't go much beyond 6.75% this year, which is still historically low.

The higher borrowing costs for home buyers have already nipped at demand. Requests for home loan applications, while little changed in recent weeks, are down 20% from last year at this time.

The National Association of Realtors said it expects sales of previously owned homes to fall 5.7% this year from 2005 to a 6.67 million unit annual rate.

Economists say the underlying strength in the U.S. economy will ensure there is some demand for housing in the spring, even if borrowing money for a home purchase has gotten more expensive.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended March 10 fell to 574.4 from the previous week's 575.6. The group's seasonally adjusted index of refinancing applications slipped to 1,583.6. A year earlier the index stood at 2,267.5.

The MBA's seasonally adjusted purchase mortgage index rose to 403.0. The index, considered a timely gauge of home sales, was below its year-ago level of 462.8.

Historically low mortgage rates have fueled a five year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment.

Higher interest rates may have finally cooled the housing sector, but the MBA's Duncan is not expecting a crash.

The MBA's survey covers about 50% of all retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.


Update - March 20, 2006:
As mortgage delinquencies increase and rates rise, real estate agents and mortgage brokers are feeling the pinch.

Washington Mutual said it would close 10 mortgage processing centers and fire 2,500 employees. In November, mortgage company Ameriquest handed out 1,500 pink slips.

Existing home sales fell in January for the fifth month in a row, and home builders Toll Bros. and KB Home say more buyers are canceling their orders. In all, home sales are expected to fall 8% from last year's record.

It was no easier in the mortgage loan business, says Toney Goucher, who closed his restaurant in Arkansas and became a mortgage broker in 2002. When he joined Leader One Financial in Kansas, home sales were hot, interest rates were low, and anyone who wasn't buying was refinancing. Last summer, the market started drying up.

Construction. Although residential construction is weakening, commercial building is picking up, thanks to demand for new roads, government office buildings and retail shops. More than 768,000 people had jobs in the non-residential construction industry in February, the most in more than three years.

Hurricanes. Hurricanes last year damaged or destroyed 700,000 homes on the Gulf Coast, according to the Federal Emergency Management Agency, based on the number of families receiving federal housing aid.

Refinancing. About 25% of outstanding mortgages in the fourth quarter were adjustable-rate mortgages, according to the Mortgage Bankers Association.