"The 30-year fixed-rate mortgage moved up more than half a percentage point, marking the largest one-week increase in our survey since 1987," Freddie Mac said in a statement. "These higher rates are the result of a shift in expectations about inflation and the course of monetary policy."
On Wednesday, the Federal Reserve announced a 75-basis point, or a three-quarter percentage point, increase for the third US interest rate hike since the outbreak of the coronavirus pandemic two years ago. It was the largest hike in 28 years and brought key lending rates to between 1.5% and 1.75% from the zero to 0.25% range in February.
"Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market," the statement said.
Other data released on Thursday showed US building permits and housing falling to their lowest levels since October, signaling a greater impact of surging interest and mortgage rates on home building.
The drop in building permits and housing starts were in line with the plunge in US home builder confidence for June. That data, released on Wednesday, showed the NAHB/Wells Fargo Housing Market Index falling to 67 this month from 69 in May - the sixth straight monthly drop for the index, now hovering at two-year lows.
Housing and real estate play important roles in the US economy, with roughly 65% of occupied housing units being owner-occupied. That makes homes a substantial source of household wealth and home construction a key provider of employment. During the 2008-2009 financial crisis, a crash of the housing market precipitated what later came to be known as the Great Recession. Since, the US property market has rapidly recovered on the back of greater economic recovery as well as the demand from buyers.
Now, economists say demand for homes might be unraveling from the triple whammy of soaring mortgage rates, Federal Reserve action on interest rates and runaway inflation.
Last week alone, mortgage applications fell 7%, slipping 21% year-over-year, the data compiled by Markets Insider showed. At the same time, demand for mortgage refinances dropped 6% over the past week, down 75% year-over-year. The consultancy firm Pantheon Macroeconomics said last week that mortgage applications were in complete "meltdown."