Homebuyers retreat as mortgage rates hit September low

Mortgage application volume declined for the third consecutive week despite a drop in interest rates, indicating that falling costs are not yet enough to revive buyer activity. According to the Mortgage Bankers Association's seasonally adjusted index, total applications dropped 1.2% from the prior week. This decline follows a brief increase in demand the previous week.

The average contract rate for 30-year fixed-rate mortgages with conforming balances of $832,750 or less fell to 7.3% from 7.37% during the same period. Associated points declined to 0.75 from 0.76 for loans with a 20% down payment. Mike Fratantoni, senior vice president and chief economist at the MBA, noted that these rates represent the lowest level since September 2026. He attributed this shift to the Federal Reserve's decision to hold off on additional rate hikes at its October meeting.

Demand for refinancing remained essentially flat, rising only 0.1% week to week. However, this figure stands 60% lower than the same period last year. Current rates remain approximately one percentage point higher than at this time last year, which limits the financial incentive for existing homeowners to refinance their loans.

Purchase applications, a key indicator of new housing demand, fell 2% from the previous week and dropped 19% compared to the same week last year. The housing market continues to show little sign of recovery after a sharp rate increase in September caused a significant slowdown in activity.

Borrowers are increasingly opting for adjustable-rate mortgages to reduce initial monthly payments. The average rate on a 5/1 ARM decreased to 6.29% from 6.41% the week before. Fratantoni stated that the share of ARMs has reached its highest level since September 2025 as borrowers seek lower starting costs despite the risk of future rate resets.

Rates moved slightly higher at the start of the current week, according to a separate survey by Mortgage News Daily. This shift followed a report on job openings that exceeded expectations. Matthew Graham, chief operating officer at Mortgage News Daily, wrote that stronger labor market data typically places upward pressure on rates. He also noted that tech stocks were modestly higher on Tuesday, adding that weakness in the tech sector had been a key factor in keeping rates lower over the past several weeks.