U.S. mortgage rates climb to one-year high as homebuyer demand eases

The benchmark 30-year fixed-rate mortgage increased to 6.66% from 6.58% last week, according to Freddie Mac data, marking the highest average rate in a year. The 15-year fixed rate also rose, reaching 6.04% after standing at 5.96% the previous week.

Higher borrowing costs add several hundred dollars to monthly payments, limiting purchasing power and contributing to a slowdown in home sales. Seasonally adjusted sales of previously owned homes were up only 0.7% from January to June compared with the same period a year earlier, leaving annual sales near four million units, well below the historic norm of about 5.2 million.

Mortgage applications fell 6.4% week-over-week, the Mortgage Bankers Association reported. > "While incoming economic data will continue to shape the outlook for interest rates, elevated borrowing costs remain a challenge this summer for many prospective homebuyers," said MBA chief executive Bob Broeksmit.

The rise in rates follows the Federal Reserve’s decision to keep its policy rate unchanged, amid ongoing debate among regional Fed presidents about the need for further hikes. > "With the Fed signaling that its next move is more likely a hike than a cut, near-term rate relief looks unlikely," said Anthony Smith, senior economist at Realtor.com. He added that de-escalation of the Iran conflict and reopening of the Strait of Hormuz would be the clearest path to lower rates.

Mortgage rates generally track the 10-year Treasury yield, which stood at 4.66% on Thursday, up from 3.97% in late February. The increase is linked to higher oil prices and expectations of hotter inflation, which have pushed long-term bond yields higher.