Mortgage Applications Drop As Rates Hit 3-Year High

Mortgage applications experienced a significant decline in the week ending October 7, as average mortgage rates climbed to their highest point in three years. The Mortgage Bankers Association (MBA) reported that its Market Composite Index, which tracks total mortgage loan application volume, fell by 4.2% on a seasonally adjusted basis compared to the previous week. This downturn reflects a broader trend of decreased activity in the housing market, largely attributed to rising borrowing costs. The Purchase Index, a key indicator of future home sales, saw a 2% dip on a seasonally adjusted basis from the prior week. On an annual comparison, purchase activity was down by 15% from the same period last year, indicating a substantial slowdown in home buying. The Refinance Index also experienced a sharp decrease, plunging 8% week over week to reach its lowest level since 2025. This refinance volume was less than half of the pace observed last year, suggesting very few homeowners find current rates attractive for refinancing. Joel Kan, the MBA's vice president and deputy chief economist, stated that the surge in borrowing costs has discouraged both potential buyers and those considering refinancing. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances reached 7.49%, according to MBA calculations. This surge is linked to rising Treasury yields, which were influenced by increasing oil prices and escalating inflation fears stemming from the ongoing conflict in the Middle East. Freddie Mac reported average 30-year rates at 7.28% for the week ending October 1, the highest since November 2023, with the 10-year Treasury yield hitting a 24-year high. Amidst this rate volatility, the share of mortgage activity dedicated to refinancing decreased from 38.3% to 37% within a single week. Conversely, the share of adjustable-rate mortgages (ARMs) saw an increase, accounting for 8.1% of total applications. The Federal Housing Administration (FHA) share of total applications slightly decreased from 16.7% to 16.4% week over week, and the Veterans Affairs (VA) share of total loan applications retreated from 11.9% to 11.8% during the same period. The only segment showing a slight positive trend was the adjustable-rate mortgage market, though overall housing data remained bleak.