US mortgage rates moved higher again last week, yet prospective homebuyers are tentatively returning to the market, possibly to capitalize on reduced competition and some price cuts. According to a seasonally adjusted index from a national home builders' association, this contributed to a 1.9% increase in overall mortgage application volume compared to the prior week.

The average contract interest rate for 30-year fixed-rate mortgages conforming to standard loan limits rose from 6.65% to 6.69%, with points, including the origination fee, decreasing from 0.67 to 0.62 for loans with a 20% down payment. This represents the highest rate level since last August.

Consequently, refinance applications, which are highly sensitive to weekly rate fluctuations, fell by 2% for the week and were only 7% higher than the same week one year ago. During that period last year, the average rate for a 30-year fixed loan was a mere 15 basis points higher than current levels.

Applications for home purchase mortgages increased by 6% week-on-week and were up a marginal 0.2% compared to the same week last year—essentially flat. As the market enters the historically quieter summer months, potential buyers are finding some breathing room. In a recent national housing survey, real estate agents reported that sellers appear more willing to reduce their asking prices.

A senior vice president and chief economist at the national home builders' association commented, "Growing housing inventory in many markets is supporting increased purchase activity. While the latest data showed a decline in inflation for June, with gasoline prices surging again, this improvement is unlikely to be sustained in July's data, meaning mortgage rates are likely to remain elevated."

According to a separate survey from a mortgage data provider, rates climbed further at the start of this week, matching the previous highs seen in mid-May. Renewed escalation in tensions in the Middle East overshadowed the impact of last week's lower-than-expected inflation report.

The chief operating officer of the mortgage data provider noted, "For those who want to keep the analysis simple, fuel prices are sufficient to explain the move. In fact, August gasoline futures also just hit their May 19th high this week—a perfect match for the round trip in rates."