Mortgage rates jump to 7.30% after hot inflation report

The trigger: The CPI rose 0.4% in October, above the 0.3% economists polled by Reuters expected, the third straight monthly gain of 0.4% or more. Mortgage News Daily's Matthew Graham wrote that the report showed broad-based price pressures, with many categories not tied to fuel coming in "surprisingly high." He said the market reaction was immediate because the Fed has said it is focused more on inflation than on jobs right now.

Bad timing for buyers: The jump landed just as lower rates were drawing borrowers back. Mortgage applications rose 6.2% in the week ended Nov. 6, the Mortgage Bankers Association said, as its average 30-year fixed rate fell to 7.21% from 7.30%, the lowest since mid-September. Purchase applications rose 8% for the week but were 18% below a year ago, and refinance applications rose 5% but were 57% lower than a year earlier. "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," said Joel Kan, MBA's deputy chief economist.

The Fed factor: Reuters said the hot CPI cemented expectations that the Federal Reserve will raise interest rates next month. As of Tuesday, CME's FedWatch tool put the odds at 90.5% for a quarter-point hike and 9.5% for a half-point hike, Real Estate News reported. Mortgage rates track longer-term Treasury yields rather than the Fed's rate directly, but expectations of tighter policy push those yields up.

Timeline (MBA weekly 30-year fixed average): week ended Oct. 9, 7.50%; Oct. 16, 7.41%; Oct. 23, 7.37%; Oct. 30, 7.30%; Nov. 6, 7.21%. Then Tuesday's daily index jump took Mortgage News Daily's average back to 7.30%. That daily figure is still below the 7.6%-plus levels Mortgage News Daily recorded in early October, and well above the 5.99% MBA average a year ago.

What it means for a payment: On a $400,000 30-year loan, principal and interest come to about $2,710 a month at 7.18% (Mortgage News Daily's level before Tuesday) and about $2,742 at 7.30%, roughly $32 more a month. At last year's 5.99%, the same loan cost about $2,396 a month, about $346 less than at 7.30%. These are US Brief calculations and exclude taxes, insurance and fees.

Daily rate figures are Mortgage News Daily's index of top-tier 30-year fixed offers as of Tuesday, Nov. 10; weekly figures are the Mortgage Bankers Association's survey for the week ended Nov. 6, released Nov. 11. The two surveys measure different things, so their levels differ. Monthly payment figures are a US Brief calculation on a $400,000 30-year loan, principal and interest only, excluding taxes, insurance and fees. Rate-hike odds are CME FedWatch as reported by Real Estate News on Nov. 10 and can change quickly.