Mortgage rates rise sharply, after falling for 4 consecutive weeks

Mortgage rates have fallen for four straight weeks, but that ended Tuesday after a monthly inflation report was hotter than expected. The average rate for a 30-year fixed-rate mortgage increased 12 basis points from Monday to 7.30%, according to Mortgage News Daily. This is the largest one-day increase in more than a month.

The Consumer Price Index showed broad upward pressure on prices, and not just on fuel costs. That follows Friday’s release of a monthly jobs report that also showed a hotter economy than analysts had predicted.

“Given that the Fed has explicitly stated that it is focusing more on the inflation component of its job description at the moment (as opposed to the ‘full employment’ component), we expected today’s data to carry much more weight than last week’s employment report. The reaction was logical and immediate,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.

The jump comes after a month of interest rate respite that finally brought back demand for mortgages. Last week, mortgage applications increased 6.2% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Indeed, last week, on a weekly average of the MBA, the 30-year fixed rate had decreased from 7.30% to 7.21%, for loans with a deposit of 20%. This is the fourth consecutive weekly decline and the lowest rate since mid-September.

As a result, requests to refinance a home loan increased 5% last week compared to the previous week, but were still 57% lower than the same week a year ago.

“Additionally, the FHA rate fell below 7 percent and was more than 20 basis points below the conforming rate, which helped first-time homebuyers currently in the market,” said Joel Kan, MBA vice president and deputy chief economist.

Mortgage applications to buy a home increased 8% over the week, but were down 18% year-over-year. The share of applications for variable rate mortgages also declined slightly as interest rates eased. ARM loans offer lower rates but carry higher risk. They are becoming more popular as rates rise and borrowers look for savings.

“The downward trend in rates has helped spur stronger application activity, although the pace of purchase and refinance applications remains considerably lower than a year ago. Conventional, VA and FHA purchase applications posted gains during the week, with particularly strong growth for FHA and VA loans,” Kan added.