On Tuesday, the average rate on U.S. 30-year fixed-rate mortgages ended a four-week decline, rising 12 basis points from the previous trading day to 7.30%, marking the largest one-day jump in more than a month. The key driver behind the rebound was the latest monthly inflation data, which came in well above market expectations and showed that price pressures were not limited to isolated areas such as energy but were broadening.

Ahead of the inflation release, the monthly jobs report published last Friday also came in hotter than many analysts expected. The back-to-back strength in employment and inflation data prompted markets to reassess the Federal Reserve’s policy path. With the Fed recently placing greater emphasis on price stability than on fully achieving its employment mandate, the inflation data had an amplified effect on rate expectations, leading to quick adjustments in bond markets and mortgage rates.

The rebound in rates came just as the mortgage market had begun to recover. Last week, as mortgage rates continued to fall, buyer sentiment improved, and seasonally adjusted mortgage applications rose 6.2% from the previous week. For loans with a 20% down payment, the 30-year fixed rate had earlier declined from 7.30% to 7.21%, extending a four-week slide and reaching its lowest level since mid-September. Lower rates had helped some buyers who had been waiting on the sidelines re-enter the market and also supported a modest improvement in refinancing demand.

However, the recovery in the refinancing market remained limited. Although refinance applications rose 5% from the previous week, they were still 57% lower than a year earlier. This suggests that even though episodic declines in borrowing costs have provided some relief, overall refinancing activity remains clearly subdued.

After government-backed mortgage rates slipped back below 7%, first-time homebuyers had briefly seen a wider range of options. Rates on such loans were more than 20 basis points lower than conventional conforming mortgages, offering some support to budget-sensitive buyers. But with hotter-than-expected inflation pushing mortgage rates higher, the homebuying window that had briefly opened may narrow again, and market sentiment is likely to turn cautious once more.