Mortgage interest rates rose last week for the first time in three weeks. As a result, total mortgage application volume dropped 1.6% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.97% from 6.84%, with points decreasing to 0.64 from 0.65 (including the origination fee) for loans with a 20% down payment. That was the weekly average, but another index from Mortgage News Daily, which looks at daily rates, had the 30-year fixed mortgage moving back over 7% last Thursday.

“Mortgage rates increased last week as incoming data showed inflation was still hotter than expected, which stoked concerns about the timing and extent to which the Fed might be able to reduce the fed funds rates this year,” said Joel Kan, MBA’s vice president and deputy chief economist.

Applications to refinance a home loan, which are most sensitive to weekly rate changes, fell 3% compared with the previous week and were also 3% lower than the same week one year ago.

Applications for a mortgage to purchase a home fell 1% for the week and were 14% lower than the same week one year ago. Purchase demand is not as sensitive to small moves in interest rates. Demand is also coming up against high prices and very limited supply.

“With housing supply low and prices high, the average loan size for purchase applications increased to the highest level since May 2022,” Kan added.

Rates are now in the low 7% range, just shy of the 2024 ceiling hit three weeks ago. That ceiling could either remain in place or be broken Wednesday with the latest Federal Reserve announcement on interest rates and the ensuing press conference with Fed Chair Jerome Powell.

“The market is already expecting a bit of an unfriendly change this time around, but the reality could easily differ from expectations. To whatever extent it does, mortgage rates are likely to make bigger moves, for better or worse,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.