US 30-year mortgage rate hits highest in nearly three years

The average 30-year fixed-rate mortgage in the United States surged to its highest level in nearly three years, reaching 7.49 percent as of the week ending October 2, according to the Mortgage Bankers Association. This increase occurred just four weeks before the U.S. presidential election, which will determine if President Donald Trump's Republicans retain control of Congress.

The jump in mortgage rates is closely linked to the yield on U.S. 10-year Treasury notes, which had reached a 24-year high earlier in the week due to worries about inflationary pressures from skyrocketing oil prices and data indicating robust U.S. economic growth. The rising cost of living is the most pressing concern for Americans as they consider their votes on November 3, with Trump's approval rating reaching a record low of 32 percent.

Home borrowing rates have increased by approximately 1.4 percentage points since the joint U.S.-Israeli strikes against Iran commenced in late February, mirroring the growth in the 10-year Treasury yield, which surpassed 5.3 percent on Monday. Inflation has also been on the rise, reaching 3.4 percent in August, according to a measure targeted by the Federal Reserve at 2 percent.

Federal Reserve policymakers have indicated their expectation to follow the September interest-rate increase with another hike by the end of the year, although markets currently anticipate no action during their upcoming policy meeting at the end of October. Mortgage loan applications declined by 4.2 percent from the previous week, as reported by the Mortgage Bankers Association, with refinancing applications experiencing a significant drop.

Joel Kan, the MBA's deputy chief economist, noted that very few homeowners have an incentive to refinance at these rates, and the surge in borrowing costs has caused many potential buyers to pull back from the purchase market.