The Mortgage Bankers Association (MBA) released its report on mortgage applications Wednesday morning, noting a week-over-week decrease of 4.1% in the group’s seasonally adjusted composite index for the week ending May 27. Mortgage loan rate movements were all over the map last week.

On an unadjusted basis, the composite index decreased by 5% week over week. The seasonally adjusted purchase index decreased by 5% compared with the week ended May 20. The unadjusted purchase index decreased by 6% for the week and is now 28% higher year over year.

The MBA’s refinance index decreased by 4% week over week and the percentage of all new applications that were seeking refinancing rose from 53.7% to 54.3%.

Adjustable rate mortgage loans accounted for 5% of all applications, down from 5.7% in the previous week.

April sales of both existing and new homes was stronger than expected and average selling prices were also very strong. Analysts at S&P Global Market Intelligence noted that the difference (spread) between yields on 10-year and two-year Treasuries has narrowed to just 93 basis points, the closest the two have been since late 2007. What does that mean:

A flattening yield curve suggests that investors are not quite ready to conclude that inflation is about to become problematic for Fed officials and financial markets. A sustained flattening of the yield curve from current levels would suggest to us that multiple FOMC rate hikes are less likely over the balance of 2016. A more disturbing interpretation of a sustained flattening of the curve would be that many fixed-income investors still believe that deflationary forces–as opposed to inflationary ones–remain the predominant concern. Some might also believe that further rate hikes from the Fed would only exacerbate the deflationary influences that briefly boiled to the surface in January and February but have been dissipating ever since.

In the mortgage loan markets, a rise in the Fed’s policy rate would tend to lift mortgage rates, and no change to the Fed’s rate would tend to keep rates lower. Friday’s jobs report and the possibility of a U.K. exit from the European Union (“Brexit”) may reveal which way the Fed will go at its June meeting.

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According to the MBA, last week’s average mortgage loan rate for a conforming 30-year fixed-rate mortgage remained unchanged at 3.85%. The rate for a jumbo 30-year fixed-rate mortgage ticked down from 3.82% to 3.81%. The average interest rate for a 15-year fixed-rate mortgage increased from 3.06% to 3.12%.

The contract interest rate for a 5/1 adjustable rate mortgage loan slipped from 3.09% to 3.00%. Rates on a 30-year FHA-backed fixed-rate loan decreased from 3.70% to 3.65%.

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