U.S. mortgage demand declines as rates fall for third straight week

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US mortgage demand declines

Highlights

Total mortgage application volume declines 1% week over week despite the average 30-year fixed rate dropping to 7.3% from 7.37%.
Refinance applications remain 60% below last year’s level, while purchase applications fall 2% on the week and are 19% lower year over year.
ARM share hits its highest point since September 2025 as 5/1 ARM rates slip to 6.29% and borrowers face persistent affordability challenges.

Mortgage applications weaken despite lower borrowing costs

As reported by CNBC, citing Mortgage Bankers Association, total mortgage application volume falls 1% week to week on a seasonally adjusted basis, even as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less declines to 7.3% from 7.37%. Points also edge down to 0.75 from 0.76, including the origination fee, for loans with a 20% down payment.

Mike Fratantoni, the MBA's senior vice president and chief economist, says mortgage rates drift down to their lowest level since September 2026 after the Federal Reserve decides at its October meeting to hold off on additional rate hikes. Even so, refinance demand is essentially flat for the week, rising just 0.1%, and remains 60% lower than the same week a year earlier.

Applications to buy a home drop 2% from the previous week and are 19% lower than a year ago. Borrowers also continue shifting toward adjustable-rate mortgages, with the average rate on a 5/1 ARM falling to 6.29% from 6.41%, while the ARM share reaches its highest level since September 2025, according to Fratantoni.

Affordability strain keeps pressure on housing market

High home prices and inflation continue stretching affordability, limiting the impact of three straight weeks of lower mortgage rates. Rates are still about a full percentage point higher than they are at the same time last year, leaving many existing borrowers with little incentive to refinance and keeping the purchase market under pressure.

The housing market shows no sign of a broad thaw after the sharp rise in rates in September pushes activity into a deep freeze. A separate survey from Mortgage News Daily also indicates rates move slightly higher at the start of this week after stronger-than-expected job openings data, which Matthew Graham, the firm's chief operating officer, says tends to put upward pressure on borrowing costs.

In our earlier article on surging Treasury yields and widening U.S. deficits, we explained how long-term rates above 5% were feeding through to higher borrowing costs across the economy, including 30-year mortgage rates around 7.5%. We also noted that the jump in funding costs was already weighing on housing activity and that persistent fiscal strain and political gridlock could keep pressure on yields—and, by extension, mortgages—for longer.

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