US mortgage rates surge to 6-month high

New York

INTEREST rates on the most popular type of US home loan shot to a 6-month high last week as global rates continued their march higher against a bout of stiff inflation and expectations that central banks will back further away from their pandemic-era easy money policies.

The contract rate on a 30-year fixed rate mortgage climbed to 3.23 per cent in the week ended Oct 15 from 3.18 per cent the week before, the Mortgage Bankers Association (MBA) reported on Oct 20 in its weekly survey of conditions in the US home lending market.

That was the highest level since early April and is up by more than a quarter percentage point since the end of July.

The increase in rates helped drive overall mortgage application volumes down by 6.3 per cent to the lowest since July, led by a 7.1 per cent drop in refinancing applications, the MBA said. Refinancing application volumes are also at their lowest since July, just fractionally above their lowest levels since early 2020.

Applications for loans to buy a home fell 4.9 per cent to the lowest since early September.

"Purchase activity declined and was 12 per cent lower than a year ago," said Joel Kan, MBA's Associate vice-president of economic and industry forecasting. "Insufficient housing supply and elevated home price growth continue to limit options for would-be buyers."

How quickly that situation is resolved remains the big unknown in the US residential real estate market. On Oct 19, the Commerce Department reported that US homebuilding unexpectedly fell in September and residential construction permits dropped to a 1-year low amid acute shortages of raw materials and labour.

Meanwhile, global interest rates continue to grind upward as central banks like the US Federal Reserve signal that the days of crisis-era accommodation are nearing their end in the face of inflation rates running at their highest in decades due to supply bottlenecks and labour shortages.

The Fed is broadly expected at its next meeting in 2 weeks to announce plans to start scaling back its purchases of US$120 billion a month of US Treasuries and mortgage-backed securities as a first step towards a normalisation of policy.

The yield on the 10-year US Treasury note, the most influential benchmark security in determining mortgage interest rates, hit its highest since May on Oct 20 and has climbed nearly half a percentage point since late July. REUTERS