U.S. mortgage rate up, but housing optimism surfaces

By Lynn Adler

NEW YORK (Reuters) - Fixed U.S. mortgage rates rose after falling for three straight weeks but remain sharply lower than a year ago, improving chances of a stabilization in the worst housing market since the Great Depression.

The average 30-year home loan rate climbed 0.06 percentage point in the week ended July 23 to 5.20 percent. That was up from April's record low of 4.78 percent but well below 6.63 percent a year ago, Freddie Mac (FRE.N) said on Thursday.

"Newly released housing indicators contain positive signs that the worst may be behind us," Frank Nothaft, chief economist at the second largest U.S. home funding company, said in a statement.

Lenders charged an average of 0.7 percent on 30-year loans in the latest week, unchanged from the prior week, Freddie Mac said.

More frequent signs of housing stability are surfacing.

Sales of existing homes rose more than expected in June, the National Association of Realtors said on Thursday, which meant sales rose for the third straight month for the first time since 2004.

"Federal Reserve Chairman Bernanke, during his July 22 Senate testimony, noted that mortgage rates are lower than they were last fall, in part because of the Federal Reserve's actions, and housing affordability right now is the highest its been in many years," Nothaft said.

Chief among the U.S. central banks' interventions has been a massive bond purchase program, of up to $1.75 trillion in mortgage-related and Treasury securities this year, aimed at keeping borrowing costs low to stimulate housing and the economy.

In other signs of housing life, building of single-family homes jumped 14.4 percent in June, the fastest rate in 4-1/2 years, the Commerce Department reported on Friday.

The National Association of Home Builders gauges of market conditions in July and the rest of this year rose to a 10-month high.

Housing is not without significant tempering factors: record and rising foreclosures, the highest unemployment rate in almost 26 years, and still-falling home prices that keep buyers waiting for even better bargains.

The Standard & Poor's/Case-Shiller home price indexes have toppled more than 32 percent from peaks three years ago. The pace of descent is slowing, but is widely seen continuing.

The last batch of home sales reports shows gathering traction as buyers take advantage of low mortgage rates and incentives such as a federal first-time buyer tax credit, wrote Millan Mulraine, economics strategist at TD Securities.

"In the grand scheme of things though, while we are encouraged by the recent flow of favorable housing sector reports, the considerable headwinds that U.S. households continue to face will likely limit the pace of recovery in the sector," he said.

(Editing by Chizu Nomiyama)