Mortgage rates sit at nearly 3-year high, and demand continues to shrink

Mortgage rates last week rose to the highest level in nearly three years. That kept demand for both refinances and home purchases on their steep and steady decline.

Total mortgage application volume dropped 4.2% compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased last week to 7.49% from 7.30%, with points increasing to 0.84 from 0.75, including the origination fee, for loans with a 20% down payment.

Applications to refinance a home loan, which are highly rate-dependent, dropped 8% for the week and were 56% lower than the same week one year ago. As rates rise each week, the pool of eligible refinances drops.

"Very few homeowners have an incentive to refinance at these rates," said Joel Kan, an MBA economist in a release. "With rates roughly a percentage point higher than a year ago, refinance applications last week were at the lowest level since 2025 and fell to less than half of last year's pace."

Applications for a mortgage to purchase a home declined 2% for the week and were 15% lower than the same week one year ago.

"Purchase activity decreased across all loan types with FHA purchase applications falling the most, declining 6%, as these higher rates add to ongoing affordability challenges for many homebuyers," Kan added. "As noted in recent weeks, a higher share of borrowers are opting for ARMs [adjustable-rate mortgages] to lower their initial payments, with the ARM share steady at 10.3% last week."

Adjustable mortgages offer lower interest rates but can adjust in either direction after their fixed terms. That is why they are considered riskier. As a comparison, in the first years of the pandemic, when fixed mortgage rates were hitting multiple record lows, the ARM share of applications was less than 3%.

Mortgage rates pulled back slightly this week, according to a separate survey from Mortgage News Daily. While the levels remain near the highest since 2003, they're near the lowest in just over a week at 7.56% for the average lender.

"What gives? Is this a sign that recent upward momentum is starting to wane?" wrote Matthew Graham, chief operating officer at Mortgage News Daily. "It's too soon to conclude such things, but it is somewhat encouraging that Monday's long-term high was basically right in line with the high seen on September 30th. This is the sort of "double top" behavior that some analysts look for when trying to identify momentum shifts."