The average interest rate on the most popular U.S. home loan rose last week to its highest since November as bond markets took fright that the Federal Reserve might have to continue tightening policy through summer to subdue inflation, data from the Mortgage Bankers Association (MBA) showed on Wednesday.
The average contract rate on a 30-year fixed-rate mortgage jumped by 23 basis points to 6.62% for the week ended Feb. 17 following stronger-than-expected retail sales and labor market data as well as still robust monthly inflation readings, which compelled investors to up their bets that the U.S. central bank will have to keep raising its policy rate through the summer.
That has caused a spike in U.S. Treasury yields, and a second straight weekly increase in mortgage rates after several weeks of declines. The yield on the 10-year note acts as a benchmark for mortgage rates.
Mortgage rates soared to more than 7% last October as the central bank raised its benchmark policy rate in 2022 at the fastest pace in 40 years, but had began to ebb after signs late last year that inflation was on the wane. The interest-rate sensitive housing sector has borne the brunt of the Fed's actions.
The renewed rise on mortgage rates caused more potential buyers to sit on the sidelines. The MBA's Purchase Composite Index, a measure of all mortgage loan applications for purchase of a single family home, dropped 18.1% from the prior week to its lowest level since 1995.
The MBA's Market Composite Index, a measure of overall mortgage loan application volume, also declined 13.3% from a week earlier.
Other housing data on Tuesday showed that U.S. existing home sales dropped to the lowest level in more than 12 years in January, but the pace of decline slowed, raising cautious optimism that the housing market slump could be close to reaching a bottom.
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