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Mortgage rate shoots past 9%

Thirty-year mortgage rates surpassed 9 percent this week, the highest level in 2{ years and a striking reflection of how higher interest rates throughout the economy are making home loans more expensive.

Housing experts, who have expressed surprise at the strength in home buying despite the steady rise of interest rates this year, said Thursday they weren't expecting a profound slump now.

But some warned that home buying could suffer if mortgage rates hit double-digit territory, putting monthly payments out of financial reach for many would-be buyers.

Thirty-year, fixed-rate mortgages reached 9.03 percent this week, up from 8.85 percent last week, according to a national survey by the Federal Home Loan Mortgage Corp., a government agency known as Freddie Mac.

The last time the 30-year mortgage exceeded 9 percent was on March 20, 1992, when the average rate also stood at 9.03 percent. Only a year ago, by mid-October 1993, the rate had hit a 25-year low of 6.74 percent.

For the consumer, the rate increase represents a significant jump in monthly mortgage payments. A homeowner with a $100,000, 30-year mortgage at 9 percent would pay $734 a month, excluding taxes and insurance. That's $71 more than a similar loan carrying an 8 percent rate and $140 more than a 7 percent loan.

"That's a pretty sizable change in monthly payments and could exclude some people who are on the edge" of qualifying financially for a mortgage, said David Seiders, chief economist for the National Association of Home Builders, a trade group.

But John Tuccillo, chief economist for the National Association of Realtors, said rising rates haven't had a big impact yet on home sales this year.

An estimated 3.965-million existing homes are expected to be sold in 1994, up from 3.802-million last year, Tuccillo said. He forecasted a slight dip in sales next year, to 3.756-million.

"Interest rates have not risen sufficiently to make a big dent in the market," he said. "Obviously, they have some negative effect, but they're not crushing the housing market in the way that you might think.

"The home buyer can pretty much find something he can afford."

He said that if rates on conventional mortgages moved above 10 percent _ something that he and other economists didn't expect to occur this year _ then demand for homes would likely suffer.

Tuccillo said demand has been holding steady throughout most of the nation because the economy remains strong and lenders are offering more affordable adjustable rate mortgages, which carry a lower initial interest rate that changes later during the life of the loan.

To be sure, ARMs, which often track the rate of the one-year Treasury bill, have been making a major comeback this year because fixed rates have climbed. Rates on most one-year ARMs are around 3 percentage points below those of prevailing fixed-rate loans. The rate averaged 5.88 percent this week, according to Freddie Mac.

ARMs made up 46 percent of the total mortgage volume in September, a six-year high. At the start of the year the market share was just 24 percent.