In recent weeks, the United States has witnessed a surge in mortgage rates, reaching their highest point in over two months. The escalation in borrowing costs has significantly affected both home purchase and refinance activities, prompting a decline in applications.
Rise in Mortgage Rates and Impasse Over Debt Ceiling
According to data released by the Mortgage Bankers Association (MBA), the contract rate on a 30-year fixed mortgage increased by 12 basis points to 6.69%. This rate hike has resulted in a considerable drop in the index of applications for home purchases, which fell by 4.3% during the week ending May 19, reaching its lowest level since early March.
The recent ascent of mortgage rates has closely followed the trajectory of the yield on the 10-year Treasury note. These increases have occurred amid ongoing negotiations surrounding the US debt ceiling, with discussions at an impasse. The higher borrowing costs have dissuaded homeowners from listing their properties and moving, leading to a surge in demand for new construction from prospective buyers.
Consequences for Refinancing
In addition to the decline in home purchase applications, the MBA’s index of refinancing applications also experienced a downturn. Falling 5.4% from the previous week, refinancing applications reached their lowest level in over two months. Consequently, this contributed to a 4.6% overall drop in the measure of mortgage applications.