Mortgage demand declined for a seventh straight week over the seven days ending Oct. 16, the Mortgage Bankers Association said Wednesday.
The MBA’s Market Composite Index, which tracks mortgage application volumes, declined 5.3% on a seasonally adjusted basis last week, showing purchase activity remains well below year-ago levels and refinance opportunities — given the interest rate environment — remain limited.
Average mortgage rates on 30-year fixed-rate loans eased to 7.41% from 7.5% over the last two weeks, their first decline of the past two months. It made no difference to borrowers.
“Lower rates were not enough to boost application activity, as both purchase and refinance applications continued to decline,” commented Joel Kan, deputy chief economist of the MBA, in the weekly report.
Typical mortgage rates have averaged more than 6.5% since May and have remained above 7% since mid-September, driven by upward momentum in U.S. Treasury yields and growing inflationary pressures that have forced the Federal Reserve to tighten financial conditions.
As origination outlooks deteriorate for 2027, production and profitability for lenders appears increasingly beyond the industry’s control.
Purchase pullback, refinance reversal
Hovering around 5.1% this week, yields on 10-year Treasurys that benchmark 30-year mortgage rates are down from recent highs exceeding 5.25% going back to late September. Cooling yields have deflated mortgage borrowing costs that had risen to their highest levels in more than two years earlier this month.
Energy shocks, trade disruptions, corporate tax cuts, a growing government debt pile, massive spending on artificial intelligence and Trump administration tariffs have formed a laundry list of costs pressures on consumers and businesses. The consumer price index, a measure of inflation, was 0.6% higher from August to September, its fastest pace since April.
Kan said higher rates are “pricing buyers out of the market.” The MBA’s latest projections suggest average 30-year mortgage rates will remain between 7% and 7.5% through the end of next year, suggesting little relief in the near term for lenders and borrowers.
The MBA’s purchase component index declined 7% from the previous week and was 18% slower than last year’s pace. Purchase demand hasn’t been this slow since the New Year’s holiday week at the start of 2025, immediately before the second Trump administration began.
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“We expect sales to remain lower than last year through the fourth quarter,” said Mischa Fisher, chief economist at Zillow, in a recent report.
Refinances, meanwhile, haven’t posted a winning week since the middle of August. According to Optimal Blue, fewer than 2 in 10 mortgage rate locks was for a refinance loan in September, half as many as the 40% of refinance locks in sales pipelines at this time last year.
Sustained higher mortgage rates
The White House is currently weighing an executive order designed to lower mortgage expenses related to mortgage insurance and refinance closing costs, among a slew of other suggestions that includes directing the U.S. Department of Agriculture and Department of Veterans Affairs to lower the mortgage rates on their single-family offerings.
However, those policy proposals would have limited impact on broader barriers driving borrowing costs higher and mortgage demand lower, such as the ongoing Iran war, higher government bond yields and trade disruptions.
On the application side, the MBA reported that the refinance share of total mortgage application activity rose to 39% last week from 37.7% previously, underscoring the sustained pullback in purchase demand that has lasted since mid-summer and seems unlikely to reverse soon.
Borrowers continue to find a financing edge, however, with adjustable-rate mortgages, which maintained an elevated application share of 10.5% last week. Buyers can often secure ARMs with rates about one percentage point lower than typical 30-year fixed-rate loans, though the products present different financial risks.
Of concern for Federal Reserve officials who view beating back inflation as a direct path to lower mortgage rates is the growing sense among consumers that higher inflation has become more the norm and less the exception post-pandemic.
The University of Michigan reported earlier this month that Trump administration tariffs and higher fuel costs are the primary drivers of consumers’ higher inflation expectations, which rose for a second consecutive month in October to their highest readings since May.
At least one additional interest rate hike is expected from the U.S. central bank before the end of 2026, following the Fed’s quarter-point increase in September, its first in three years.
Tasked with maintaining price stability and maximum employment, Fed Chair Kevin Warsh has emphasized since May that the Fed is predominantly focused on achieving its inflation goal. Aggressive tightening may be necessary to not only slow resurgent inflation but return price growth to the central bank’s long-run objective.
