The Mortgage Bankers Association’s (MBA) latest survey showed a pullback in mortgage applications, with rates dipping slightly after a three-week climb. The week’s numbers were also affected by the Memorial Day holiday, contributing to larger unadjusted declines. Still, the broader trend remains intact, with purchase demand continuing to outperform last year despite short-term rate volatility. “Most mortgage rates moved lower last week, with the 30-year fixed rate declining to 6.92 percent and staying in the 6.8 to 7 percent range since April,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. He noted that purchase applications remain 18 percent higher than the same week last year, driven in part by a modest rise in FHA activity. Meanwhile, refinance activity fell again, and the average refi loan size dropped to the lowest level since July 2024, suggesting borrowers are still holding out for better rates. Seasonally adjusted refinance applications fell 4 percent from the previous week, while purchase apps also declined 4 percent. On an unadjusted basis, both categories dropped by 15 percent, though the year-over-year numbers remain solid: purchases are up 18 percent and refis are up 42 percent versus this time in 2024. Mortgage Rate Summary:

Mortgage rates have enjoyed a nice run since May 21st, with the MND Index (average top tier 30yr fixed scenarios) falling from a recent peak of 7.08% to this week’s low of 6.87%. As recently as yesterday afternoon, rates were still much closer to those lows at 6.89%.  One day can make a big difference and today turned out to be that day. We knew there was a risk of volatility due to the release of the big jobs report this morning. Unfortunately for rates, the news was less dire than markets were prepared for. Specifically, traders of the bonds that influence interest rates were moving into a defensive position after this week’s previous economic reports foreshadowed some extra weakness in today’s jobs report. In this case, the defensive position would equate to “buying more bonds” which, in turn, pushes rates lower. In other words, they’d taken a lead-off toward lower rates based on the suspicion that the data might come out a bit worse than forecast. As it happened, however, the data was right in line with forecasts.  With that, the proverbial runner was quick to return to base with the rate index heading back up to 6.97%. This is a fairly middle-of-the-road rate over the past month and a half.  The implication is that we’re right back in the same holding pattern observed over the past few weeks as we wait for a more compelling shift in the economic data or other key events.

The bond market was likely taking a bit of a lead-off ahead of today’s jobs report, inspired by a string of weaker economic data over the past week.  Wednesday’s ADP and ISM data had an especially notable impact, prompting us to note the asymmetric risk associated with NFP at the time. In other words, traders were gearing up for a number that was even lower than the 130k consensus.  When the actual number came out at 139k, there was a rush to get back into a more neutral position. While it’s true that last month’s NFP was revised to 147k from 177k, this is not significant evidence of weakness in the bigger picture. 177k was a big beat at the time and 147k is still quite healthy given current immigration dynamics. Top it all off with a relatively steady 4.2% unemployment rate and this report simply wasn’t bad enough to justify the lead-off.

A Bloomberg report alleges the regulator’s own attorneys are raising alarm over a potential increase in fraud, corruption and other predatory practices.

The Federal Reserve Board governor said higher import tariffs could have a “persistent” impact on inflation.

But improved for-sale supply is providing buyers with more options and helping to keep softer price pressures for those looking to buy, writes Cotality’s Chief Economist.

Even with the four basis-point drop, the 30-year fixed rate mortgage remained at levels last seen in February as the Spring homebuying season reaches its climax.

Funding for Volo Loans, which assists U.S. homebuyers in Costa Rica, comes after recent polling showed a significant share of Americans open to moving abroad.

Bonds Dial Back Ahead of Big Jobs Report

It was a fairly interesting day for bonds, relative to the calendar of scheduled events.  Domestic econ data was unimportant and markets traded accordingly from 8:30-8:45am. At that point, the European Central Bank announcement hit the wires and the takeaway was fairly hawkish, despite the rate cut.  At the same time, newswires made the rounds regarding a Trump/Xi phone call that could lead to future meetings and improved trade relations–a narrative that’s generally produced “risk-on” results for stocks and bonds. Then in the afternoon, stocks pulled back as Trump and Musk exchanged words on social media (TSLA down about 16% on the day). Lastly, we could also be seeing both sides of the market moving to cash to some extent ahead of the jobs report. Either way, the willingness to react to data so far this week means Friday’s jobs data should be treated with just as much respect as normal.

Econ Data / Events

Jobless Claims

247k vs 235k f’cast, 239k prev

Market Movement Recap

08:42 AM Slightly stronger overnight and little-changed after econ data.  MBS up an eighth and 10yr down 3bps at 4.326

09:26 AM Losing ground after ECB announcement.  MBS down 1 tick (.03) and 10yr up half a bp at 4.36

Bonds began the morning in rally mode, even if not in an extreme way.  Gains lasted for about 20 minutes before reversing.  The shift was accompanied by slightly elevated volume, indicating a genuine underlying motivation. Fortunately, there are two good candidates to choose from.  Unfortunately, it’s hard to assign an exact amount of blame/credit to each of them. Based on stock market volatility, the Trump/Xi call is definitely on the radar. Stocks surged on the announcement, and then tanked when the call ended without any additional headlines. The ECB announcement also got attention based on the reaction in the Euro and EU yields.  The net effect has been a return to roughly unchanged levels for Treasuries and MBS.