U.S. mortgage market sees rising adjustable-rate loan use as higher rates pressure affordability

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Rising adjustable-rate mortgage use

Highlights

Total U.S. mortgage application volume fell 2.75% week-over-week and stands 37.5% below the same week a year ago, according to the MBA.
The average contract interest rate for 30-year fixed-rate conforming mortgages rose to 7.50%, driving the ARM share up to 10.5%, the highest since October 2025.
Refinance applications dropped 0.4% on the week and 56% year-over-year, while purchase applications fell 4% week-over-week and 16% year-over-year, reflecting ongoing affordability pressures.

Mortgage rate increases reshape borrower choices

As reported by CNBC, citing the Mortgage Bankers Association, total mortgage application volume falls 2.75% last week from the previous week on a seasonally adjusted basis, and stands 37.5% below the same week a year earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less rises to 7.50% from 7.49%, while points edge down to 0.83 from 0.84, including the origination fee, for loans with a 20% down payment. The rate is more than a full percentage point above its level a year ago.

Joel Kan, an economist at the MBA, says borrowers continue to rely more on adjustable-rate mortgage loans to lower monthly payments. The ARM share reaches 10.5%, its highest level since October 2025, reflecting how buyers are trading rate certainty for near-term payment relief.

ARMs typically offer lower initial interest rates and can stay fixed for as long as 10 years, but they later adjust based on future rate conditions. That structure leaves borrowers more exposed if market rates remain elevated or rise further.

Housing demand weakens as refinancing and purchases decline

Refinancing activity remains under the greatest pressure because fewer borrowers can materially reduce their payments at current rates. Refinance applications slip 0.4% on the week and are 56% lower than a year earlier.

Applications for home purchase mortgages drop 4% from the prior week and are 16% below the same week one year ago. More homes are available for sale, but inventory is concentrated at the higher end of the market, while supply also grows because sales are slowing rather than because new listings are accelerating.

Home prices continue to rise, adding another affordability hurdle for buyers already strained by financing costs. A separate Tuesday report from the National Association of Realtors shows closed home sales in August rise slightly from July, but those transactions reflect summer market conditions when mortgage rates were lower.

Lawrence Yun, NAR's chief economist, says August and September mark the two slowest months for home sales this year despite the modest monthly increase on a seasonally adjusted basis. Further mortgage rate increases in recent weeks mean fewer buyers can qualify to purchase a home, pointing to continued pressure on housing activity.

Our earlier article on U.S. Treasury yields ahead of the September CPI report explained how bond markets were trading cautiously as investors awaited inflation data that could reshape expectations for the Federal Reserve’s next rate decision. We highlighted moves in the 2-year, 10-year, and 30-year yields and noted that the CPI release carried extra weight because the PCE inflation gauge would arrive only after the upcoming FOMC meeting.

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