Mortgage applications pulled back last week as rates moved around in response to fresh inflation data and shifting geopolitical headlines. The Mortgage Bankers Association (MBA) reported a 3.8% decline in total application volume on a seasonally adjusted basis for the week ending June 12. Refinance activity accounted for much of the slowdown. The Refinance Index fell 5% from the previous week, though it remained 17% above the same period one year ago. Purchase demand also softened, but has generally done a better job of holding near multi-year highs. The seasonally adjusted Purchase Index decreased 3% week over week and was 3% higher than a year ago. “Last week’s CPI data showed that inflation continued to move higher, putting upward pressure on rates early in the week, but growing optimism regarding the opening of the Strait of Hormuz brought rates down again by the end of the week,” said Mike Fratantoni, MBA’s SVP and chief economist. He said the net effect was a drop in both purchase and refinance activity, with purchase applications still modestly ahead of last year’s pace and conventional purchase volume showing stronger growth than government lending. Refinance share of mortgage activity edged up to 40.3% from 40.2%, while the ARM share slipped to 8.5% from 8.6%. Government-backed application shares were mixed. FHA share increased to 17.5% from 17.4%, while VA share declined to 12.9% from 13.4%. USDA share was unchanged at 0.4% .

Builder sentiment slipped again in June as elevated mortgage rates, higher material costs and ongoing affordability pressures continued to weigh on the housing market. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell two points to 35 , marking the 14th straight month the index has remained below 40. The latest reading underscores how far confidence remains from more durable levels. A streak that long below 40 has not been seen since 2011-2012 , when the market was still dealing with the fallout from the foreclosure crisis. All three major components of the index were either lower or unchanged. Current sales conditions slipped two points to 38 , while sales expectations over the next six months held steady at 45 . Traffic of prospective buyers remained unchanged at 25 , suggesting demand is still soft despite the start of the summer selling season. “With the nation short about 1.2 million homes, builder sentiment will remain soft until barriers are eased and conditions improve for home building,” said NAHB Chairman Bill Owens. He said Congress could help by advancing the major housing package now before the Senate, along with legislation aimed at easing labor shortages and protecting access to natural gas in new homes. NAHB Chief Economist Robert Dietz said regulatory and policy costs continue to make it harder for builders to add supply. He pointed to a new NAHB study showing that government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home, arguing that easing permitting delays, density limits and zoning restrictions would help reduce costs.

Lots of people who bought cars during the pandemic are deeply underwater on those vehicles, meaning the amount they owe is considerably higher than the actual value of the vehicle. Among car buyers who traded in a car to buy a new one, 30 percent had negative equity on their trade-in, owing an average of $7,200. One thing that may have caused the surge is the emergence of the 84-month (seven year) car loan; 42.6 percent of underwater buyers had an 84-month loan, about double the level of a decade ago. (Today’s podcast can be found here and this week’s ‘casts are sponsored by Truework, the one verification solution to replace in-house waterfalls. Verify any borrower with a VOIE solution that automates the entire process to quickly deliver the most accurate and complete reports with broad GSE coverage. Hear interview with National Consumer Reporting Association’s Eric Ellman on the nomination of Brian Johnson to lead the Consumer Financial Protection Bureau, based on his extensive experience in financial services regulation and his understanding of how to balance consumer protection with access to credit, mortgages, and housing.) Broker and Lender Products, Software, and Services Borrower outreach isn’t broken. The experience is. Most servicers have no shortage of communication channels. The challenge is creating a connected experience that helps borrowers understand their options and the next steps. Clarifire’s latest blog explores where communication breaks down during default servicing, why early delinquency engagement matters, and how workflow automation can reduce confusion, improve responsiveness, and drive better outcomes for both borrowers and servicing teams. Discover how connected workflows, intelligent intake, and self-service tools can improve borrower engagement and servicing outcomes. Read “Closing the Borrower Communication Gap” at eClarifire.com, where Brighter Automation® creates better outcomes.

Active listings reached 1.4 million homes, a 4.3% increase year over year, while sales fell 1.2%, which came in better than expectations, Homes.com said.

Mortgage applications rose 3.8% on a seasonally adjusted basis from one week prior for the period ending June 12, according to the MBA’s Market Composite Index.

The clarification spells out what banks can share to stop scams. The Bank Policy Institute welcomed it but wants Congress to write the protection into law.

The decline in non-owner occupied acquisitions came as sales fell overall due to high mortgage rates and bad winter weather in the Northeast, BatchData said.

The Fathom Holdings purchase bolsters the retail platform’s ambitions to become a one-stop shop for all homeownership needs, Bed Bath & Beyond’s CEO said.

Bonds Tell Warsh What They Think of His Changes

Ironically, one of Warsh’s comments in today’s press conference was that market movement is the most important source of information for the Fed. At the same time, the market was effectively saying that it was also fond of hearing what was on the Fed’s mind, and if the Fed is going to stop sharing those thoughts, the market was going to cry about it. This certainly wasn’t the whole story as the hawkish dot plot did about half the damage well before the press conference. One could also argue that some traders may have expected Warsh to do something to push back against that Hawkishness. Instead, he did very little apart from reference various task forces that would be working on several projects. In general, the lack of transparency and the absence of even a semblance of forward guidance led the market to rapidly price in a higher risk premium in both stocks and bonds. Bottom line, markets said “if you aren’t going to do anything to push back on that hawkish dot plot, we’re gonna go ahead and assume rate hikes are more likely.” 

Econ Data / Events

Retail Sales (May)

0.9% vs 0.5% f’cast, 0.5% prev

Retail Sales Control Group MoM (May)

0.7% vs 0.4% f’cast, 0.5% prev

Market Movement Recap

08:33 AM Flat overnight and no reaction to data. MBS unchanged and 10yr unchanged at 4.44.

11:30 AM MBS up 1 tick (.03) and 10yr down 1bp at 4.431

02:17 PM MBS down an eighth and 10yr up 1.2bps at 4.455

03:10 PM MBS down 10 ticks (.31) and 10yr up 3.2bps at 4.473

Mortgage rates quickly erased a week of progress this afternoon following the Fed announcement and press conference. Fed announcement day historically has several components: the announcement itself, the summary of economic projections (SEP), and the press conference.  Within the SEP, there is the dot plot showing each Fed member’s assumptions about where the Fed Funds Rate will be in the future if the economy continues on the expected course. “The dots” only come out every other Fed meeting, but they have a habit of causing volatile market reactions. Today’s was no exception. The dots essentially show that the average Fed member now sees the Fed Funds rate at least 0.25% higher at the end of 2026 than they did back in March. This is responsible for the first big move in the bond market today. Bonds lost more ground during new Fed Chair Kevin Warsh’s press conference. The reasons for this could be debated. Some traders may have been expecting Warsh to push back against the dot plot with a more rate-friendly tone. Others may have been disheartened at the lack of any guidance about how the Fed is interpreting incoming economic data. In general, lower transparency regarding the Fed’s reaction function arguably requires traders to price in a higher risk premium. Because rates are based on bonds, and because bonds lost ground sharply, mortgage lenders ended up raising rates in the afternoon–some of them up to 3 times. When the dust settled, the average lender was back up to June 10th levels with top-tier 30yr fixed rates at 6.62%.