Mortgage rates dropped last week, but not by enough to move buyers off the sidelines.
Total mortgage application volume fell 2.5% compared to the prior week, according to the Mortgage Bankers Association's seasonally adjusted index. The results include an adjustment for the Memorial Day holiday.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less dropped to 6.57% from 6.65%. Points increased slightly, to 0.67 from 0.65, including the origination fee, for loans with a 20% down payment.
The reason for the modest decline traces back to energy markets. "The prospect of easing energy prices given the evolving situation in the Middle East brought mortgage rates slightly lower last week," said Joel Kan, vice president and deputy chief economist at the MBA. "The 5-year ARM rate inched up slightly, reflecting a flattening yield curve, as short-term rates are at risk of increasing while longer-term rates have dropped."
Applications to purchase a home fell 3% for the week, reaching the slowest pace since April. Despite that weekly drop, demand was still 7% higher than the same week one year ago, when mortgage rates were 35 basis points higher than current levels.
Refinance applications also slipped. They fell 2% for the week, hitting the slowest pace since last June. Still, refinance demand was 20% higher than the same week in 2025. Adjustable-rate mortgage demand declined as well. Consumers typically turn to ARMs when rates are rising, and with rates moving lower, that incentive weakened.
Rates have been essentially flat so far this week, according to a separate survey from Mortgage News Daily. Matthew Graham, chief operating officer at Mortgage News Daily, noted the calm in bond markets but flagged a potential shift ahead. "Unlike the average trading day of late, bonds held inside a very narrow range AND didn't visibly respond to any major Iran war news (and the typical oil price volatility that follows)," he wrote.
Bonds could see more movement this Friday when the federal government releases its monthly employment report. That report is closely watched by mortgage markets because strong job numbers tend to push yields and rates higher, while a weak report can pull them lower.
For now, the housing market remains stuck. Rates have not fallen enough to unlock demand in any meaningful way. Buyers who may have been waiting for relief got only a small fraction of what would be needed to significantly change the affordability picture.
