Mortgage Refinance Demand Falls 60% as Purchase Applications Stall

Refinancing collapses and purchases stall

In late September, the clearest feature of the U.S. mortgage market was how differently its two halves were behaving. Refinance demand was falling for an obvious reason, and purchase demand was barely moving in either direction. In the week ending September 18, total application volume tracked by the Mortgage Bankers Association fell 1.5%, after a 4.1% drop the week before. Purchase activity slipped only 1% and had moved sideways for several weeks.41 Refinancing was weaker. The MBA's Refinance Index fell another 3%, sat 62% below its level a year earlier, and reached its slowest pace since February 2025.41

The cause was rates. MBA chief economist Mike Fratantoni said the 30-year fixed rate had jumped to 7.12%, its highest since May 2024.41 Few homeowners gain anything by swapping their current loan for one at that rate, so the drop in refinancing was predictable.

A month later, the pattern is largely the same, but the backdrop is worse. Rates went higher still, and data on contract signings, construction and prices all weakened. The sideways trend in purchase applications now looks less like stability and more like a market slowly stalling.

The latest application data

The most recent MBA survey, for the week ending October 23, showed a small rebound. Total applications rose 3.4% on a seasonally adjusted basis, purchase applications rose 4% and refinance applications rose 3%.1 The 30-year conforming contract rate fell to 7.37% from 7.41%, its lowest in three weeks.1

The year-over-year numbers tell a different story. Unadjusted purchase applications were 18% below the same week in 2025, and refinancing was 61% lower.1 MBA deputy chief economist Joel Kan said many buyers have put their plans on hold and most borrowers have little to gain from refinancing.1 Coverage from HousingWire, Mortgage Professional America and CU Today all treated the weekly gain as brief relief, not a turning point.237 RISMedia described the market as still subdued.6

Other data points the same way. Xactus's Mortgage Intent Index, which tracks credit pulls, rose about 2.8% for the week but remained more than 20% below a year earlier. Xactus said the prior week's dip was partly caused by the Columbus Day holiday.2 Weekly gains that follow a holiday tend to overstate any recovery.

The most useful signal in the data is the shift toward adjustable-rate mortgages (ARMs). In mid-September, ARMs made up 9.8% of applications, up from 8.4%, with the 5/1 ARM priced more than a full point below the 30-year fixed.41 By late October, the ARM share had reached 11.3%, the highest in more than a year. The 5/1 rate stood at 6.41%, roughly 96 basis points below the fixed-rate average.15 Borrowers are giving up long-term payment certainty to get a lower payment now, which signals how stretched affordability has become.

Rate forecasts keep rising

In September, rates near 7% could still look like a temporary spike. That view is harder to hold now. Freddie Mac's 30-year average reached 7.40% in mid-October, the highest in nearly three years.29 It was 7.32% on October 22, compared with 6.19% a year earlier.30 The 10-year Treasury yield closed at 5.31% on October 5, its high for the year.30

The major forecasters have raised their numbers. Earlier in October, LendingTree was still citing year-end forecasts of 6.8% from Fannie Mae and the MBA and 6.9% from Wells Fargo.21 Those figures are now out of date. Fannie Mae's October forecast calls for 7.4% in the fourth quarter of 2026 and 7.5% for all of 2027.27 The MBA's October forecast puts year-end 2026 at 7.3%, then 7.2% for the first three quarters of 2027 and 7.1% in the final quarter.27 The two forecasters differ only on whether 2027 is slightly better or slightly worse than today. Neither expects rates to return to the 6% range soon.

Short-term expectations are more neutral. In Bankrate's weekly poll, 80% of experts expected rates to stay roughly unchanged and none expected an increase. One economist in the poll said markets put the odds of a December rate hike above 80%.22 Coverage differs on the Federal Reserve's direction. LendingTree reported a 25-basis-point hike at a recent meeting.21 An MBS Highway executive argued that the two-year Treasury yield implies the Fed may need to raise rates by another half point.3 Whatever the exact path, the borrowing outlook leans toward tighter conditions, not easier ones.

Pending sales point lower

If purchase applications are moving sideways, contract data suggests the next move is down. The National Association of Realtors (NAR) reported that pending home sales fell 7.3% in September, against a forecast of about a 0.7% decline.40 Pending sales were 11.3% lower than a year earlier.31

Redfin's weekly data is weaker still. In the four weeks ending October 25, pending sales fell to 276,352. That is 15.9% below a year earlier and the lowest level in records going back to 2021. For the third week in a row, pending sales fell in all 50 of the largest metro areas.34 The steepest year-over-year drops were in Seattle, Atlanta and San Diego.34

Closed sales lag contracts, which explains why they look slightly better. NAR reported that existing-home sales rose 1.5% in September to a 3.99 million annual rate, but that was still 2.2% below a year earlier.36 NAR chief economist Lawrence Yun said August and September were the two slowest months of the year.31 Oxford Economics' Nancy Vanden Houten expects the sales pace to stay below 4 million for several quarters if rates remain above 7%.36 Given the September drop in contract signings, the September gain in closings looks like the last of the summer pipeline, not the start of a rebound.

Home prices begin to slip

Prices are where the sources diverge most. NAR's median existing-home price in September was $417,500, up 1.3% from a year earlier and the 39th straight month of annual gains.36 The FHFA index was up 2.4% year over year in August.31 Case-Shiller and FHFA data both showed continued growth for that month.3

Redfin's more current weekly data shows a turn. The median sale price for the four weeks ending October 25 was $389,601, down 0.1% from a year earlier. Redfin described this as the first annual decline in more than three years.3437 Redfin's own reporting has been inconsistent, however. One week earlier, it reported a 0.2% annual increase, yet its later release described two straight weeks of declines.3338 A median price can also fall because of a change in the mix of homes sold, not just because comparable homes lost value.38

The reasonable reading is that price growth has effectively stopped rather than reversed. Other indicators support that view. Redfin reported that the share of listings with price cuts hit a record 22% in mid-October, and median asking prices posted their first annual decline since March.39 Monthly payments are near record highs, around $2,786 at a 7.32% rate, up 10.7% from a year earlier.34 Until rates fall, flat prices do little for buyers.

Sellers are pulling back too. New listings dropped to their lowest level since January.34 Months of supply rose to 4.5, within the 4-to-5-month range considered balanced.34 Vanden Houten expects weaker demand to weigh on prices, partly offset by sellers leaving the market.36

Builders slow construction

Construction data points the same way. Housing starts fell 5.2% in September to a 1.221 million annual rate, below a consensus estimate near 1.30 million and 7.4% below a year earlier.1112 The MortgagePoint reported the monthly decline as 5.9%, while the Census Bureau's release says 5.2%.1811 Only May came in lower over the past 25 months.13

The Census Bureau's margin of error on the monthly change was ±11.8 percentage points, so the decline is not statistically significant on its own.12 The direction is clearer in the details. Single-family starts fell 4.6% to 859,000.12 Single-family permits, which lead starts, fell 4.0% to 845,000.14 Completions were 14% below a year earlier, the only headline change outside its margin of error.15 Starts in buildings with five or more units were 25.9% lower than a year earlier, though permits for that category rose.13

Builders are not stopping work, but they are clearly cutting back. According to Zonda's Ali Wolf, the median new-home price has fallen below the median existing-home price as builders offer rate buydowns and other incentives.36 Those incentives may be one of the few levers that still helps buyers at current rates.

What comes next

Across the sources, the September pattern of weak refinancing and flat purchase demand has continued, and the wider housing data has gotten worse around it. Refinancing will remain minimal as long as most homeowners hold loans far below 7%. Roughly half of outstanding mortgages carry rates below 4%.3

Purchase applications are the number to watch. Pending sales are at record lows, prices have stopped rising, permits are falling and forecasters expect rates above 7% into 2027. Taken together, the data suggests the flat stretch in purchase demand is more likely to break lower than higher. A modest decline in rates would cushion that, but nothing in the latest forecasts points to a move large enough to bring buyers back in significant numbers.