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The interest rate on the most popular U.S. home loan leapt back over 7% last week for the first time since last fall as financial markets adjusted to an expectation that the Federal Reserve would need to keep its benchmark rate higher for longer to beat back inflation.
The average contract rate on a 30-year fixed-rate mortgage jumped 22 basis points to 7.07% in the week ended July 7, the Mortgage Bankers Association said Wednesday in their weekly recap of home loan applications activity. That was the highest since November and brings that rate to within 10 basis points of last October’s two-decade high in home loan borrowing costs.
“Incoming economic data continue to send mixed signals about the economy, with the overall impact leaving Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation. All mortgage rates in our survey followed suit,” said MBA Deputy Chief Economist Joel Kan.
The rate on “jumbo” loans for amounts greater than $726,200 rose to 7.04%, the highest since MBA began tracking that data series in 2011.
Rate futures markets expect the Fed to resume interest rate hikes two weeks from now after foregoing an increase last month to take the time to assess the effects of the aggressive actions it has taken since March 2022 to contain the highest inflation in four decades. The Fed has lifted rates by 5 percentage points since then from near zero, and officials have signaled that rates may rise by perhaps another half point by year end.