As is the case almost every week of the year, the Mortgage Bankers Association released its weekly mortgage app survey this week, showing the changes in purchase and refinance applications. We can skip right past any discussion or analysis of the purchase application index as it was almost identical to last week, not to mention reluctant to be influenced by interest rate movement in the first place. Refinance demand, on the other hand, is notoriously beholden to rate fluctuations.  As such, it was somewhat surprising to see the refi index  decline by about 3.6%. After all, last week’s mortgage rates were lower than the previous week’s, and continued to fall throughout the week. While it’s true that rates were lower last week, it’s important to remember MBA’s methodology.  Application data is collected through the previous Friday and then reported on the following Wednesday. Mortgage rates only began moving lower in any serious way on Thursday.  That means the survey didn’t have much time to benefit from the rate drop this time around.   Given the pace of rate improvement since then, it would be a much bigger surprise to see another counterintuitive movement in next week’s data.  If precedent is an indication, refi demand could once again challenge the best levels since October 2024.

After more than a week of consistent and meaningful improvement, mortgage rates finally showed us that they were at least capable of moving in the other direction yesterday. Thankfully, that demonstration was short-lived.   The average lender got back to the recently typical business of offering the lowest conventional 30yr fixed rates in several months. As of today, you’d have to go back to December 9th to see anything lower, but if rates improve just a tiny bit more, you’d have to keep feeding quarters into the time machine until reaching October 18th. At that point, it would take quite bit more doing to extend the “best in x months” time frame, but no one’s complaining. The average lender is easily back into the upper middle 6% range with many of the more aggressive lenders actually in the mid 6% range for top tier scenarios. This is a surprising turn of events given the interest rate fears being parroted by many pundits as the market considered the potential impact of tariff implementation.  To be fair, fiscal policies will take much more time to make their impacts known on the economy and interest rates.  For now, the gains are courtesy of softer economic data, as-expected PCE inflation (announced just today), and investor concern over the economic impact from fiscal policy.  [thirtyyearmortgagerates]

The massive spike and subsequent correction in home price appreciation (mid-2020 through early 2023) generated lots of opinions and concerns about the fate of the housing market. Early on, the fear was that prices were rising too high, too quickly. By mid-2022, the fear was that home prices were en route to a crash that could be reminiscent of the infamous mortgage meltdown and great financial crisis. Of those two fears, only the first was ever going to be valid (i.e. a melt-down style contraction wasn’t possible without the other ingredients in place 20 years ago).  Prices definitely rose too high, too fast, but let’s face it: the average homeowner isn’t really scared of their home becoming more valuable.  It’s only housing economists and first time homebuyers that are truly troubled by runaway prices.  Even then, higher prices were a bit of an illusion due to all-time low interest rates. By early 2023, the Case Shiller home price index had dipped well into negative territory, year over year.  At the time, we were comfortable reminding our readers that this was a logical byproduct of rapidly rising rates and a much-needed correction from the blistering pace of appreciation seen through early 2022. Two years later and things really couldn’t look any more boring, and this week’s most recent update to both the major home price indices is just the latest confirmation. Even if we look at the super noisy month-to-month readings, we can still see both indices bouncing around the historically normal mid-point like a well-behaved EKG.  Granted, Case Shiller’s EKG rhythms are a bit wider than normal, but this is always the more volatile of the two series.

Ryan Donovan, the Council of Federal Home Loan Banks’ CEO, foresees affordable housing mandates becoming more focused on home supply than demand.

Company executives touted the immediate returns from its rebranding and Super Bowl advertising campaign, with February activity exceeding expectations.

Any rollback in property taxes would require enough signatures to place a question on the ballot and pass with at least 60% of support from Florida voters.

The grandson of the PulteGroup founder did not elaborate on plans for a much-anticipated government-sponsored enterprise exit from conservatorship.

Pending sales of existing US homes slumped to a record low in January as severe winter weather slowed activity and consumers balked at high prices and mortgage rates ahead of the vital spring selling season.

Stop the presses! Mortgage rates actually moved HIGHER today! While it’s the first time we’ve been able to say such things since last Tuesday, the damage is almost imperceptible.  In fact, if we compare today’s rates to yesterday morning’s they’re identical to slightly lower.  Today’s rates are only worse when compared to the slightly lower rates seen after yesterday’s mid-day improvements.  In general, lenders prefer to set mortgage rates once per day and hope the underlying bond market doesn’t move enough to force a mid day reprice (a positive or negative adjustment). The bigger the bond market move, the more lenders will be inclined to reprice.  Today’s movements weren’t big enough for reprices, so the morning mortgage rate offerings stayed in effect throughout the day. Bonds were only modestly weaker, thus the minimal change in rates.  Bottom line, for all practical purposes, today’s rates are still the lowest since early December. Tomorrow brings this week’s best and final chance to see some volatility, for better or worse. The PCE Price Index for January will be released at 8:30am ET. This is the most important economic report of the week and one that began having an impact on rates 2 weeks ago when traders gleaned clues from other inflation reports that suggested PCE would look better than its more timely counterparts. If that was confusing, here’s a breakdown: CPI and PPI are the two other inflation indices that come out 2 weeks before PCE.  They’re more timely, but not as robust in terms of the data covered.  They also have a bearing on PCE if you know which details to include and ignore. When traders did that math, they concluded that PCE would paint a slightly better picture for inflation.  Because of that, rates were able to move lower on a week with higher inflation numbers.

Trying to Shake Off Overnight Weakness After Mixed Bag of Data

Bonds came into the domestic session at slightly weaker levels after losing ground gradually in the overnight session. They morning’s economic data was basically a wash.  Durable goods came in hot, but the report has been volatile surrounding fiscal policy implementation. Quarterly PCE was revised up, but that’s stale data (Q4, 2024). On the rate-friendly side, Jobless Claims were much higher than forecast, but still not out of line with trend levels from the past few years. Tomorrow’s monthly PCE data should be less prone to “yeah buts.” That said, keep in mind that some of the positive reaction potential has already been traded after the PPI data 2 weeks ago.  In other words, core PCE might need to be lower than expected to see a rate-friendly reaction (as opposed to merely hitting the 0.3% month-over-month forecast).

Econ Data / Events

GDP 

2.3 vs 2.3 f’cast
PCE Price Index revised up 0.2

Jobless Claims

242k vs 221k f’cast, 220k prev

Durable Goods

3.1 vs 2.0 f’cast, -1.8 prev

Core Durable Goods

0.8 vs 0.2 f’cast, 0.2 prev

Market Movement Recap

09:03 AM Slightly weaker before data, and mostly choppy/sideways after that.  MBS down roughly an eighth of a point and 10yr up 2.9bps at 4.288

02:54 PM Broadly sideways after a modest recovery.  MBS down 1 tick (.03) and 10yr up 2.5bps at 4.285

04:11 PM MBS down 2 ticks (.06) and 10yr up 1.4bps at 4.272