Mortgage Applications Continue To Drop After Rates Surge to 3-Year High

Mortgage applications fell this past week as mortgage rates surged to their highest level in three years amid a global bond selloff, giving wary homebuyers little incentive to come off the sidelines, according to the Mortgage Bankers Association.

For the week ending on Oct. 7, MBA's Market Composite Index—a measure of total mortgage loan application volume—decreased 4.2% from the prior week on a seasonally adjusted basis from one week earlier.

The Purchase Index, deemed a leading indicator for home sales, dipped 2% compared to the previous week after seasonal adjustment. Purchase activity was down 15% from a year ago.

The seasonally adjusted Refinance index also plunged 8% week over week to its lowest level since 2025, and was less than half of last year's pace.

"Very few homeowners have an incentive to refinance at these rates, and the jump in borrowing costs has caused many potential borrowers to step back from the purchase market," says Joel Kan, MBA's vice president and deputy chief economist.

According to MBA calculations, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances hit 7.49% as a result surging Treasury yields.

Freddie Mac put average 30-year rates at 7.28% for the week ending Oct. 1, the highest since Nov. 2023, as the 10-year Treasury yield jumped to a 24-year high due to rising oil prices and escalating inflation fears fueled by the ongoing conflict in the Middle East.

Because of this rate volatility, the refinance share of mortgage activity decreased from 38.3% to 37% in a single week.

However, the adjustable-rate mortgage (ARM) share of activity increased to 8.1% of total applications.

The Federal Housing Administration share of total applications ticked down from 16.7% to 16.4% week over week, while the Veterans Affairs share of total loan applications retreated from 11.9% to 11.8% during the same period.

The sole positive note in this week's bleak housing data is the adjustable-rate mortgage (ARM) share, which held steady at 10.3% of total applications.

"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," says Kan. "As noted in recent weeks, a higher share of borrowers are opting for ARMs to lower their initial payments."

The Federal Open Market Committee (FOMC) voted last month to raise the federal funds rate for the first time in three years by a quarter percentage point to curb inflation.

Financial markets currently estimate a roughly 78% chance that the Fed's benchmark interest rate will remain at its current range of 3.75%-4% when FOMC meets next at the end of October, according to the CME FedWatch tool.

How mortgage rates are calculated

Mortgage rates are calculated based on various factors in the economy, and the length of your loan and credit score will also factor into the mortgage rate you qualify for.

The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, because most 30-year mortgages are either paid off or refinanced in roughly eight to 11 years.

That makes the duration on the loans roughly comparable, and mortgage lenders use the 10-year Treasury as a benchmark for setting rates, adding on a risk premium.

Long-term yields for Treasury notes are determined by a number of factors, including the supply of and demand for U.S. government debt, and investor expectations for inflation over the life of the bonds.