The 30-year mortgage rate rises to the highest level since July

Yields on the most popular U.S. home loan rose to 6.73% last week, the highest level since July, adding to headwinds for the housing market even as the Federal Reserve appears set to further cut its target for short-term borrowing costs.

The average contract rate on a 30-year fixed-rate mortgage rose 21 basis points in the week ended Oct. 25, the Mortgage Bankers Association said today.

The key home loan rate is now 60 basis points higher than just after the Fed meeting in mid-September, when the central bank made an initial cut in the policy rate by half a percentage point and announced that further cuts would follow.

Mortgage rates had fallen in anticipation of the Fed’s move, which revived the housing market. Contracts to purchase previously owned homes rose the most in four years in September, the National Association of Realtors reported today. Pending sales are converted into actual sales a month or two later.

But almost immediately after the Fed’s September meeting, home loan rates began rising again as stronger-than-expected data, including a jump in spending and big job growth, eased recession concerns and fueled expectations that the Fed will interest rates would drop more slowly. A report on Wednesday showing that consumer and business spending strengthened economic growth in the most recent quarter also reinforced this view.

Moreover, traders have begun betting that both inflation and interest rates could remain high if Donald Trump takes over the White House and his Republican Party takes control of Congress in next week’s closely fought elections. Yields on 10-year U.S. Treasury bonds, which closely track mortgage rates, hit a nearly four-month high on Tuesday.

Refinancing applications fell last week, the MBA said, and now represent just 43.1% of total mortgage applications. That is below the historical average of 48%.