Mortgage Applications Rise 3.4% After 7-Week Slide as Rates Ease

A small rebound in a weak market

After seven straight weekly declines, mortgage demand in the U.S. finally went up. The Mortgage Bankers Association's Market Composite Index rose 3.4% on a seasonally adjusted basis in the week ending Oct. 23. Over the same week, the average contract rate on a 30-year fixed conforming loan slipped to 7.37% from 7.41%.14 That rate was the lowest in three weeks, and it was the second weekly drop in a row.15 Freddie Mac's survey showed the same direction: its 30-year average fell to 7.32% from 7.40%. That was its first weekly decline in two months, ending seven consecutive increases that had taken rates to three-year highs.18

The news is good, but the gain is small, and every outlet that covered the report said so. Even the MBA played it down. Scotsman Guide reported that the association treated the gain as an outlier and saw little to keep it going.12 We agree with that reading. This is relief from a falling rate, not a turn in demand. The housing data released around it points to a market that is still losing momentum.

What the application numbers show

Purchase applications rose 4% from the prior week after seasonal adjustment. On an unadjusted basis they were 18% below the same week last year.14 Refinance applications rose 3% for the week but were 61% below a year earlier.14 Joel Kan, the MBA's deputy chief economist, said many buyers have put their plans on hold. He added that most homeowners have little reason to refinance because rates are still more than a percentage point above year-ago levels.13

The figure most worth watching is the share of adjustable-rate mortgages (ARMs), loans whose rate is fixed for a few years and then resets. ARMs made up 11.3% of applications, up from 10.5%, the highest share in more than a year.14 The average 5/1 ARM rate fell to 6.41%, about 96 basis points below the 30-year fixed average.15 Borrowers who pick ARMs get a lower payment now and take on the risk of a higher one later. More buyers making that trade shows how stretched affordability is. Several outlets pointed out that these borrowers face payment risk once the fixed period ends.1518

The report also showed the lock-in effect. About half of U.S. mortgage borrowers have rates below 4%, according to Federal Housing Finance Agency data cited in the coverage.16 For those owners, moving or refinancing means taking on a much more expensive loan. That keeps both refinancing and the supply of homes for sale low.

Where the coverage diverges

Outlets mostly agree on the numbers but describe them differently. Scotsman Guide called it the first gain in eight weeks and the first since late August.12 Most others said it ended a seven-week losing streak. These are two ways of counting the same run of declines.

The disagreement over how high rates got is more real. Scotsman Guide put the recent MBA peak at 7.5%.12 RISMedia said rates reached 7.63% in October, which probably reflects a different daily or survey measure.13 India Weekly said applications had risen for a second consecutive week.16 Its own figures, and every other report, describe a single-week rebound after a long slide. Calculated Risk's Bill McBride went further than most. He titled his section on the report as a sign that applications remain weak, even though the headline number rose.17 His reading is closer to the MBA's own view.

Rate forecasts move higher

The main reason the rebound is unlikely to last is that forecasters have raised their rate outlooks. Fannie Mae's October Housing Forecast expects the 30-year rate to average 7.4% in the fourth quarter of 2026 and 7.5% throughout 2027.7 The MBA's October forecast is a little lower: 7.3% at the end of 2026, easing to 7.1% by late 2027.7 Scotsman Guide reported that both groups see rates staying near current levels through next year, with single-family originations falling below $2 trillion.12 Fannie Mae's forecast tables show 2027 single-family originations of about $1.87 trillion, down from about $2.09 trillion in 2026, with refinancing falling sharply.29

Earlier forecasts are already out of date. LendingTree's October guide still listed year-end projections near 6.8% from Fannie Mae and the MBA.1 Those numbers have been overtaken by the newer releases. CNHI noted that the earlier calls were made before the late-September jump in rates and Treasury yields.9 Readers who see a forecast in the 6% range should check its date.

The broader backdrop explains the rise in rates. The Federal Reserve raised rates in September, and Chair Kevin Warsh was widely expected to hold them steady at this week's meeting, days before the midterm elections.11 The 10-year Treasury yield, the main benchmark for mortgage pricing, closed at 5.31% on Oct. 5, its highest close of the year.10 One analysis tied the year's climb in rates to the Fed's hike and to September inflation of 3.7%.8 Fannie Mae expects the 10-year yield to stay around 5.3% through 2027.7 That leaves little room for mortgage rates to fall much on their own. Mortgage Daily's weekly forecast leaned toward rates drifting to about 7.18% by Oct. 30, but with low confidence.2

Home sales near multi-decade lows

The sales data shows how much damage this rate cycle has done. Existing-home sales rose 1.5% in September to a seasonally adjusted annual pace of 3.99 million. That was still 2.2% below a year earlier, and August and September were the two slowest months of the year.22 Harvard's housing center describes existing-home sales as stuck at a three-decade low.23 Oxford Economics' Nancy Vanden Houten expects the annual pace to stay below 4 million for several quarters if rates stay above 7%.27

Sales still to come look weaker. Pending home sales, signed contracts that have not yet closed, fell 7.3% in September from the prior month and were 11.3% lower than a year earlier.21 September closings mostly reflected contracts signed in July and August, when rates were near 6.7%.26 The full effect of 7%-plus rates has not yet shown up in closed sales.

Home prices flatten as inventory builds

Prices are holding up but barely rising. NAR's September median existing-home price was $417,500, up 1.3% from a year ago. That was the 39th straight month of annual gains.27 The S&P Case-Shiller index fell 0.4% in August from July while staying 2.7% higher than a year earlier.28 One analysis noted that with consumer prices rising 3.4% a year, home prices are already falling after inflation.23

Supply is moving toward buyers. Homes for sale rose to 1.60 million, the most since November 2019, equal to a 4.8-month supply.22 McBride's weekly data showed inventory up 5.7% from a year earlier. He argued that weak demand and rising supply will put pressure on prices.17 Vanden Houten offered a counterweight: sellers pulling their homes off the market could limit price declines.27 On balance, we expect prices to stay flat or slip slightly in the months ahead, especially in the West and Northeast, where sales fell most.27

Affordability is the core problem. The monthly principal and interest payment on a median-priced home reached $2,313 in mid-October, the highest in ten years and up from $989 in February 2021.23

Builders pull back

Homebuilding is slowing too. Housing starts fell 5.2% in September to an annual rate of 1.221 million, 7.4% lower than a year earlier.25 Single-family starts fell 4.6% to 859,000, and single-family permits, a sign of future building, fell to 845,000.25 The National Association of Home Builders' confidence index fell to 29 in October, its lowest since 2012. Buyer traffic dropped to 18, and 43% of builders cut prices, the highest share since 2020.28 Builders are also dealing with higher material and diesel costs and labor shortages.25

This creates an opening for buyers. Zonda's Ali Wolf said the median new-home price has fallen below the median existing-home price, as builders use rate buydowns and other incentives to hit year-end targets.27

The bottom line

The 3.4% rise in applications shows that buyers are still out there and react when rates dip. It does not show a recovery. With forecasts calling for rates of 7% to 7.5% into 2027, lock-in keeping refinancing at historic lows, and builders cutting back, the housing market is likely to stay slow through the winter. The best sign of real improvement would be a sustained drop in the 10-year Treasury yield below 5%, not one week of application data.