U.S. mortgage rates drop below 7 percent for first time since March

U.S. mortgage rates declined below 7 percent last week for the first time since March, spurring back-to-back increases in financing applications for home purchases.

The contract rate on a 30-year fixed mortgage decreased 8 basis points to 6.94 percent in the week ended June 14, according to Mortgage Bankers Association data released Wednesday. The five-year adjustable-rate mortgage slid 18 basis points to 6.27 percent, matching the lowest level since February.

The index of mortgage applications to buy a home increased 1.6 percent to the highest level since March after jumping 8.6 percent in the prior week.

Mortgage rates move in tandem with Treasury yields, which also declined notably last week as government figures showed a broad cooling in inflationary pressures. That prompted traders to boost bets the Federal Reserve is in a better position to move ahead with interest-rate cuts, possibly as soon as September.

The housing market early this year was showing signs of breaking free of a years-long slump until mortgage rates began to climb. Lower financing costs for home purchases have the potential to blunt some of the impact from elevated list prices and give housing demand greater traction.

To help buyers cope with the affordability crisis, builders such as Lennar Corp. and KB Home have deployed buyer incentives such as discounted mortgage rates to help bolster orders.

MBA’s overall index of applications, which includes those for home purchases and refinancing, advanced 0.9 percent last week to the highest since mid-January. The group’s refinancing gauge slipped 0.4 percent.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75 percent of all retail residential mortgage applications in the U.S.