US Mortgage Rates Hit One-Year High as Oil Price Fears Bite

US home loan costs have reached their highest level in a year, driven by concerns over elevated oil prices and inflation. The average 30-year fixed-rate mortgage has climbed to 6.66 per cent, according to Freddie Mac, up from 6.72 per cent at the end of last July.

Analysts point to the intersection of energy markets and monetary policy as the central force behind the rise in mortgage rates. LoanDepot chief economist Jeff DerGurahian said oil and inflation remain the biggest drivers, and mortgage rates will likely need energy prices to settle and inflation to remain under control before they can move meaningfully lower.

The Federal Reserve's signals have added to the uncertainty gripping mortgage markets. The central bank voted to hold its benchmark interest rate steady, but three of its rate-setting committee members voted in favour of a hike, a rare split that markets interpreted as a signal a higher rate could be on the way in the near future.

The rate increase is already visible in weakening demand for home loans. Mortgage applications fell 6.4 per cent last week compared with the week before, while refinance applications plunged by 10 per cent over the same period.