U.S. Mortgage Rates Surge

(Reuters) – The interest rate for the most popular U.S. home loan rose to 6.36% last week, marking the biggest weekly increase in over a year. This surge followed better-than-expected economic data that led financial markets to reconsider their bets on further interest-rate cuts by the Federal Reserve.

The average contract rate on a 30-year fixed-rate mortgage increased by 22 basis points for the week ending Oct. 4, according to the Mortgage Bankers Association. This is the largest jump since July 2023, during which the Fed was still increasing rates to combat inflation.

The U.S. central bank began to cut its short-term benchmark rate last month, reflecting confidence that inflation trends are moving toward the 2% target. They made a notable cut of half a percentage point to support a cooling labor market.

Mortgage rates peaked in October 2023 at nearly 8%, but had decreased by over 1.75 percentage points ahead of the Fed’s September meeting, which signaled a shift to policy easing.

This recent jump in rates returns the home borrowing rate to levels seen in late August, before the Fed's rate cut.

The 30-year mortgage rate closely follows the yield on the 10-year Treasury note, which rose sharply last week after a government report revealed a significant job growth in September alongside a decline in the unemployment rate.

This robust performance alleviated concerns about a too-rapid cooling of the labor market, prompting traders to adjust their expectations for future Fed rate cuts. Financial markets now foresee a reduction in the Fed's policy rate, currently in the 4.75%-5.00% range, down to 3.50%-3.75% by mid-next year.