Homeowners rushed to take advantage of last week's drop in interest rates after the government's takeover of Fannie Mae and Freddie Mac, but rates are rising again on investor fears about the eroding conditions in financial markets.

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Real estate

Homeowners rushed to take advantage of last week’s drop in interest rates after the government’s takeover of Fannie Mae and Freddie Mac, but rates are rising again on investor fears about the eroding conditions in financial markets.

A mini-refinance boom started last Thursday but ended early Monday, said Pava Leyrer, president of Heritage National Mortgage in Michigan.

The average rate on a 30-year, fixed rate mortgage was 6.14 percent Wednesday, up from 6.02 percent after the government bailed out Fannie and Freddie, though still below last month’s 6.65 percent, according to HSH Associates.

Last week, refinance applications spiked 88 percent, according to the Mortgage Bankers Association. Refinances were nearly 52 percent of all application activity, up from 36 percent the previous week, the trade group said.

Economy

Construction on homes dives

Construction of new homes and apartments fell to the weakest pace in 17 years in August, far more than expected, but lower mortgage rates and tax credits have given builders some glimmer of hope of a possible rebound.

Housing construction dropped 6.2 percent last month, the Commerce Department reported Wednesday, far larger than the 1.6 percent decline analysts had been expecting.

It was the slowest building pace since January 1991 but that should help clear out bloated inventories of unsold homes.

Building activity is on track to slide below the 1 million mark for the whole year, the first time that has happened in more than six decades.

Energy

$100 million helps pump up Sapphire

Sapphire Energy said Wednesday its latest round of funding brought the total amount raised by the company to $100 million.

The San Diego-based alternative-energy company, which aims to produce renewable crude, was founded in part by Bob Nelsen, a Seattle-based director of ARCH Venture Partners. Bill Gates’ Cascade Investments is also an investor.

Sapphire said the money it has raised will build up its facilities to “full commercial feasibility.” The company also said it expects to rely on existing investors to reach its initial production rate of 10,000 barrels of “green crude” per day within three to five years.

Other investors include Wellcome Trust and Venrock.

Aviation

United estimates fuel-hedge loss

Airline bets that oil prices would rise looked like a no-brainer this summer. But with oil prices falling, those hedges against rising fuel costs are getting expensive.

United Airlines said on Wednesday it is on track to lose $544 million on fuel hedges this quarter. That included $72 million in realized losses and another $472 million in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets.

Other airlines have not disclosed their hedging losses or gains for the third quarter, but it is likely that United was not alone in underestimating oil’s dramatic fall. Oil settled at $97.16 a barrel on the New York Mercantile Exchange today, down from a July peak of $147.

Northwest Airlines said in July that its hedges require it to pay if crude falls below $108. Its hedge for 10 percent of its fuel for next year requires it to pay if crude falls below $112.

Pharmacies

Longs rejects Walgreen offer

A corporate fight continued Wednesday over California-based Longs Drug Stores, one of the last major regional drugstore chains, when it rejected a $2.8 billion offer by Walgreen.

Last week Walgreen, the largest retail-pharmacy chain in the country, made an eleventh-hour bid to scuttle the previously announced agreement in which CVS Caremark, the second-largest chain, would pay about $2.7 billion for Longs.

In declining the offer, Longs said it had concerns about potential antitrust risks and noted that Walgreen hadn’t outlined a “clear road map” to acquire the company.

But Walgreen said the battle was far from over.

“We are disappointed with the refusal of the Longs board to discuss our superior proposal,” spokesman Michael Polzin said.

Shares of Longs fell $1.52, or 2 percent, to $74.79 on Wednesday. Shares of Walgreen fell $1.52, or 4.5 percent, to $31.96. CVS shares fell $1.12, to $35.01.

Real estate

Home-price drop in S. California

A research firm says the median Southern California home price fell 34 percent in August from last year.

MDA DataQuick says in its report Wednesday that the median price for new and resale homes and condos dropped to $330,000 last month in a six-county region. That’s down from the market peak of $500,000 in August 2007.

Foreclosures accounted for almost 46 percent of all resold properties last month, up from 10 percent in August 2007 and almost 44 percent in July.

Compiled from The Associated Press, Los Angeles Times and Seattle Times staff