Mortgage rates rise to three-month high, slowing home demand

US mortgage rates climbed last week to a three-month high, prompting a slide in applications for home purchases and refinancing.

The contract rate on a 30-year mortgage rose 6 basis points to 6.92% in the week ended May 16, according to Mortgage Bankers Association data released Wednesday. The rate on five-year adjustable mortgages also increased to the highest since early February.

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An index of applications for home purchases as well as a gauge of refinancing each decreased around 5%, the MBA data showed.

The applications figures illustrate a lack of sustainable momentum in the housing market. While contract signings of new and previously owned houses firmed up in March, elevated borrowing costs and home prices are proving a larger hurdle for many prospective buyers. April sales data are due later this week. 

Mortgage rates follow moves in Treasury yields, which have climbed since late April. Recently, yields have pushed higher on concerns of fiscal largess as tax legislation advances on Capitol Hill, as well as the downgrade to the US's credit score by Moody's Ratings.

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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% of all retail residential mortgage applications in the US.