US mortgage rates slide sharply, reinvigorating housing demand

US MORTGAGE rates dropped sharply, capping the biggest four-week slide in nearly a year and spurring a fresh round of applications to purchase homes.

The contract rate on a 30-year fixed mortgage tumbled 20 basis points to 7.41 per cent last week, data from the Mortgage Bankers Association (MBA) showed on Wednesday (Nov 22). The index of home-purchase applications increased 3.9 per cent in the week ended Nov 17, the most since June.

Since reaching a 23-year high of nearly 8 per cent in mid-October, mortgage rates have plunged nearly half a percentage point. The effective rate, which includes fees and compound interest, dropped to a still-elevated 7.59 per cent. In contrast, the five-year adjustable rate increased.

Mortgage rates tend to move in tandem with Treasury yields. The 10-year Treasury yield has fallen steeply this month after hitting a 16-year high in October, helped by signs the economy is cooling along with inflation.

The overall index of applications, which includes purchases and refinancings, rose for a third week, and refinancing activity picked up.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75 per cent of all retail residential mortgage applications in the US. BLOOMBERG