In the United States, the interest rates for the most popular home loans jumped by the highest amount in eleven years.
The sudden increase in interest rates can be attributed to the rapid repositioning of bond market investors, who have responded to the Federal Reserve’s intentions to take more aggressive actions to combat rapidly spiraling inflation, according to a survey released on Wednesday.
According to the Mortgage Bankers Association (MBA), the contract rate for a fixed-rate mortgage spanning 30 years increased to 4.8 percent in the week ending on March 25. This increase represents a 0.3 percent jump from 4.5 percent just a week earlier.
Moreover, this sudden jump represents the largest one-week increase since February 2011, bringing mortgage rates to their highest levels since December 2018.
In addition, mortgage rates have also climbed up by almost 1.5 percent since the beginning of the year, which is the most dramatic increase in run-up home borrowing costs since 1994.
With the rapid increase in mortgage rates, mortgage application activity has declined sharply over the past few weeks.
Per remarks from the MBA, its Mortgage Composite Index dropped 6.8 percent on a seasonally adjusted basis to 425.1, which represents the lowest level since December 2019.
The Mortgage Composite Index represents a measure of mortgage loan application volume.
In addition, the refinance index declined to 14.9 percent, which is the lowest level since May 2019. The purchase index, however, did not change significantly, according to the MBA.
U.S. Treasury security yields, which generally act as a benchmark for mortgage rates, have also increased dramatically in the past month, notably after the Federal Reserve adjusted its policy rate, an adjustment that has not occurred since 2018.
Moreover, policymakers, including Federal Reserve Chair Jerome Powell, have indicated plans to start increasing interest rates more rapidly and aggressively in the coming year.
Policymakers’ remarks emerge as the central bank struggles to combat the highest level of inflation seen in 40 years.