Mortgage Applications Rise 3.4% as ARM Share Hits One-Year High

A rebound that doesn't change the trend

After weeks of falling demand, mortgage borrowers had a slightly better week. The Mortgage Bankers Association's weekly survey for the week ending October 23, 2026 showed total applications up 3.4% on a seasonally adjusted basis and up 3% before seasonal adjustment.11 The average contract rate on a conforming 30-year fixed loan fell to 7.37% from 7.41%. That was the second weekly decline in a row and the lowest level in three weeks.11 The MBA's composite index rose to 195.0. The purchase index climbed to 134.1 and the refinance index to 516.8.7

The weekly gain matters less than the comparison with last year. Unadjusted purchase applications were 18% below the same week in 2025. Refinance applications were 61% lower.11 Joel Kan, the MBA's deputy chief economist, said rates are still more than a percentage point above year-ago levels. He added that many would-be buyers have put their plans on hold and that most existing borrowers have little reason to refinance.11 Our reading is that this is a short pause in a market still being squeezed by high borrowing costs, not the start of a recovery.

Where the coverage agrees and where it diverges

Outlets agree on the main numbers. Several also note that this was the first weekly gain in applications since late August, ending a seven-week losing streak.510 Some details differ. Scotsman Guide reported that the unadjusted purchase index fell 3%, while the MBA's own release says it rose 3%.1011 Scotsman Guide also wrote that the MBA dismissed the gain as an outlier. Kan's published comments are more measured: he called it relief, just narrow relief.1011 One wire account said the FHA share "decreased" to 16.6% from 16.3%, which is actually an increase. The MBA's figures confirm the FHA share went up.511 None of these discrepancies changes the overall picture, but readers should treat the MBA release as the authoritative source.

Coverage also differs in tone. Trade outlets aimed at brokers presented the week as a modest chance to re-engage clients.2 Calculated Risk focused on the data and concluded that purchase activity remains weak.19 The data support the second view.

ARMs show the affordability strain

The more telling figure this week is the shift toward adjustable-rate loans. ARMs made up 11.3% of applications, the highest share in more than a year.11 Their share stood at 10.3% in early October and 10.5% in mid-October.1215 The average 5/1 ARM rate fell to 6.41%, about 96 basis points below the 30-year fixed average.3

That gap explains the shift. Buyers who can't afford a fixed payment are accepting the risk of a reset in exchange for a lower payment now. Kan said directly that borrowers are choosing ARMs to cut their monthly costs.11 Several outlets pointed out that this savings is temporary: payments can rise once the introductory period ends.34 A rising ARM share during a period of high rates suggests buyers are stretching their budgets, not that confidence is returning.

Prices are still rising, slowly

Home prices have barely responded to higher rates. The S&P Cotality Case-Shiller national index rose 2.1% from a year earlier in August, up from 1.9% in July. The 10-city and 20-city composites gained 3.6% and 2.7%.52 The monthly figures look weaker. National prices fell 0.2% in August, while a typical pre-pandemic August saw a 0.3% gain. Higher-priced homes posted the steepest declines.52 Cotality expects modest price declines to continue through fall and winter.52

With consumer prices up 3.4%, a 2.1% nominal gain in home prices is a small decline after inflation.57 Regional differences are wide. Chicago, New York and Cleveland led annual gains, while Seattle, Las Vegas and Denver posted declines.5253

The National Association of Realtors reported a similar pattern. The September median existing-home price was $417,500, up 1.3% from a year earlier. It was the 39th straight month of annual gains and the highest September median on record.4142 The West was the only region where the median price fell.44 Sellers are mostly holding firm, and buyers are being priced out rather than getting discounts.

Sales stall even as inventory rises

Existing-home sales rose 1.5% in September to a seasonally adjusted annual rate of 3.99 million but were 2.2% lower than a year earlier.41 NAR chief economist Lawrence Yun said August and September were the two slowest months of the year. He also discounted the monthly gain because August's figure had been revised down.42 Inventory rose to 1.60 million homes, the highest since November 2019, equal to a 4.8-month supply.42 Yun summed up the shift by saying supply is no longer the problem and demand is what's shrinking.42

The next few months may look worse. September closings mostly came from contracts signed in summer, when rates were near 6.7%. One analysis noted that contracts signed in September, with rates at 7% or higher, fell 7.3% to a record low.45 Yun said higher inventory and longer time on the market give buyers more negotiating power.50 That leverage helps only buyers who can qualify for a loan at current rates.

Builders are pulling back

Home builders are cutting back. Housing starts fell 5.2% in September to an annual rate of 1.221 million, well below the roughly 1.30 million economists expected. It was the third straight monthly decline.3233 Single-family starts fell 4.6% to 859,000.3134 Single-family permits fell 4.0% to 845,000, their lowest rate since March 2023.40 Permits are the better guide to future construction.

The Census Bureau notes that the monthly changes in starts fall within the margin of error.3637 The year-over-year drop in completions, 14%, was the clearest signal in the report.38 Multifamily is the exception. Apartment permits rose 5.9% even as apartment starts were 25.9% below a year earlier.34 Santander economist Stephen Stanley argued that slower building could keep unsold inventory from piling up.40 Taken together, falling single-family permits point to a construction slowdown that will continue into 2027.

Forecasts point to rates above 7% through 2027

The weekly dip in rates looks small next to the latest forecasts. In its October outlook, Fannie Mae projected that the 30-year rate will average 7.4% in the fourth quarter of 2026 and 7.5% in every quarter of 2027. A month earlier it had forecast 6.8% and 6.7%.2223 The MBA is slightly less pessimistic. It sees 7.3% at the end of 2026, easing to 7.1% by the fourth quarter of 2027.21 The difference comes mostly from their outlooks for the 10-year Treasury yield: Fannie Mae assumes 5.3%, while the MBA expects about 5%.21 Earlier in October, TD Cowen projected rates closer to 6.6% for 2027, but that forecast came before September's inflation report showed prices rising 3.7%.22

The change has been fast. Rates briefly fell below 6% in February before climbing back above 7%.4 The Federal Reserve raised rates in September.5 Fed Chair Kevin Warsh and other policymakers are widely expected to hold rates steady this week, ahead of the midterm elections.5 Yields have eased recently. The 10-year Treasury fell from 5.24% to about 5.13%, and Freddie Mac's 30-year average dropped to 7.32% from 7.40%. That was its first weekly decline in two months, after seven straight increases.4

Forecasters also expect weaker lending volumes. Fannie Mae now projects 2027 single-family originations of about $1.865 trillion, with refinancing falling to $430 billion.22 It expects home price growth to slow to 0.6% next year.23 It also forecasts 1.301 million housing starts in 2027, down from 1.341 million this year.27

What it means

The 3.4% gain shows that buyers are still waiting and will come back when rates fall. A small drop in rates was enough to bring some of them in. That is the encouraging part. The rest of the data is less encouraging. Rates are near three-year highs, prices are still edging up, builders are cutting back, and forecasters don't expect much rate relief in 2027. Under those conditions, weekly rebounds like this one are likely to stay small. A lasting recovery would probably require a sustained drop in Treasury yields, which would depend on inflation cooling. Until then, more buyers are likely to turn to ARMs, and owners with low-rate mortgages will mostly stay put. About half of mortgage holders have rates below 4%.2