Home buyers are losing purchasing power week by week because of the surge in mortgage interest rates. Eventually, that is bound to slow down the economy.

Last week, the national average rate on a 30-year mortgage jumped to 6.34 percent, according to Freddie Mac. That is up almost a full percentage point since March 18, when the rate was 5.38 percent. In June, the average rate was only 5.21 percent, the lowest level since Freddie Mac began recording the rates in 1971.

These increases have already had a big impact on the prices people are able to pay for houses. At 5.38 percent — the March 18 weekly average — a 30-year mortgage for $200,000 means a monthly payment of $1,120.57. At the current rate of 6.34 percent, though, keeping that monthly payment means a mortgage of only $180,276.

Mortgage rates will move higher — and purchasing power will fall further — if interest rates rise as forecast. Because of the expected rate rise, the Mortgage Bankers Association predicts that sales of existing and new homes will fall modestly by the second quarter of next year, as will housing starts.

For now, though, the consensus on Wall Street is that rising interest rates have not yet led to a significant slowdown in the construction of new housing. Economists are expecting only a 1.3 percent fall in April housing starts, which the government reports this week, to an annual rate of dan, is it style to keep last zero on following?/kf 1.980 million, from 2.007 million in March, according to Bloomberg's consensus forecast. That rate is just a little below the 1.987 million average for the last six months.

LESS TO SPEND

Rising mortgage rates have already caused a plunge in the number of mortgage refinancings, which have provided Americans with billions of extra dollars to spend.

In 2003, the additional cash from refinancings totaled about $200 billion. In each refinancing where homeowners took out some cash, the extra pocket money averaged $20,000 to $30,000, according to the Mortgage Bankers Association. Since the week ending March 19, new applications for refinancing have plunged 56 percent, and they are down 78 percent from their record high at the end of May last year.

EXIT LEFT

Another casualty of the rise in interest rates has been the high-yield bond market. So far this year, the high-yield market is showing an overall loss of 1.7 percent, according to Merrill Lynch bond indexes. Since the yield on the Treasury's 10-year note began rising from its 2004 low in March, the high-yield loss has been 3.5 percent. Last year, the total return for high-yield bonds was 28.1 percent, the best ever.

Investors have taken notice. In the week ending May 12, they pulled $2.2 billion out of high-yield mutual funds, according to AMG Data Services. That is the second-biggest net weekly outflow in AMG's data history, which goes back to 1992. Compared with the same periods in earlier years, this year's net outflow through May 12 is the largest ever.

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