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Mortgage rates snapped a four week decline Tuesday after a monthly inflation report showed stronger price pressure than expected. Mortgage News Daily said the average rate on a fixed mortgage carrying a 30 year term climbed 12 basis points from Monday to 7.30%.

The increase was the largest single day move higher in more than a month. It abruptly ended a stretch of easing that had offered borrowers some relief and helped bring mortgage demand back after a monthlong reprieve in interest rates.

The consumer price index showed broad upward pressure on prices, rather than an increase confined to fuel related costs. The report followed Friday’s monthly employment figures, which also portrayed a hotter economy than analysts had anticipated.

Matthew Graham, chief operating officer at Mortgage News Daily, said the inflation reading carried particular importance because of the Federal Reserve’s stated focus. “Given that the Fed explicitly said it was more focused on the inflation component of its job description at the moment (as opposed to the ‘full employment’ component), we were expecting today’s data to carry far more weight than last week’s jobs report. The reaction was logical an immediate,” Graham wrote.

Before Tuesday’s reversal, falling rates had helped revive applications. The Mortgage Bankers Association said total mortgage applications rose 6.2% last week from the prior week, according to its seasonally adjusted index.

On the MBA’s weekly average, the rate for a fixed mortgage with a 30 year term fell to 7.21% from 7.30% for loans requiring a 20% down payment. That marked the fourth consecutive weekly decline and the lowest reading since mid September.

Refinance applications increased 5% last week compared with the previous week. Even with that improvement, refinance demand remained 57% below its level during the same week one year earlier.

Joel Kan, vice president and deputy chief economist at the MBA, pointed to a favorable change for certain borrowers. “Moreover, the FHA rate was back below 7% and was more than 20 basis points lower than the conforming rate, which helped first-time home buyers currently in the market,” Kan said.

Purchase demand also strengthened as rates eased. Applications for mortgages to buy homes advanced 8% during the week, though they remained 18% lower than a year earlier.

The share of applications involving adjustable rate mortgages slipped slightly while interest rates declined. These loans can offer lower rates but carry greater risk, and they tend to gain popularity when rates rise and borrowers look for savings.

Activity improved across multiple loan categories during the week. Kan said conventional, VA and FHA purchase applications all posted gains, with especially strong growth among FHA and VA loans.

“The declining trend in rates helped to spur stronger application activity, although the pace of purchase and refinance applications remain considerably lower than a year ago. Applications for conventional, VA, and FHA purchase applications saw gains over the week, with particularly strong growth for FHA and VA loans,” Kan added.

The latest figures capture a housing finance market that responded quickly to a month of easing but continued to trail last year’s application volumes. Tuesday’s 12 basis point jump placed fresh pressure on rates just after demand had begun showing stronger weekly movement.

The contrast is sharp: weekly applications rose while borrowing costs were declining, then the inflation report immediately halted the four week run of lower rates. For prospective buyers and homeowners considering refinancing, the rate picture shifted materially in a single day.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.