Mortgage applications to purchase a home fell 18% year over year this week, as the housing market continues to be rocked by inflation, high interest rates, and elevated oil prices due to the ongoing war with Iran.
For the week ending Oct. 9, the Mortgage Bankers Association’s Market Composite Index—a measure of total mortgage loan application volume—fell 5.3% on a seasonally adjusted basis from one week earlier, reflecting a broader hesitation among prospective buyers navigating a tightening economic landscape.
The Purchase Index, which measures the volume of mortgage applications to purchase a single-family home, decreased 7% from one week earlier after seasonal adjustment. When stacked against the previous year, purchase applications were firmly down 18%, underscoring how severely compounding affordability hurdles have dampened consumer demand during what is traditionally a pivotal season for real estate activity.
According to MBA calculations, the average contract interest rate for 30-year fixed mortgages with conforming loan balances sits at 7.41%, representing a slight, albeit negligible, decrease from the previous week’s high of 7.5%. Meanwhile, mortgage rates held steady at 7.4% last week, according to data from Freddie Mac.
Despite this minor downward tick in average rates, prospective buyers have largely remained on the sidelines.
"However, lower rates were not enough to boost application activity, as both purchase and refinance applications continued to decline," said Joel Kan, the MBA’s vice president and deputy chief economist. "It is very clear that the higher mortgage rate environment has cooled the housing market this fall."
This cooling trend is heavily influenced by stubborn macroeconomic pressures. With elevated inflation levels continuing to persist across the broader economy, it remains increasingly likely that interest rates will stay high for the foreseeable future, according to Realtor.com® senior economist Hannah Jones.
"Mortgage rates are expected to stay elevated after the latest CPI data showed both headline and core inflation picking up," Jones explained. "As a result, markets are pricing in the possibility of another Fed rate hike before the end of the year. Against that backdrop, buyers will likely keep facing tough affordability conditions through year-end, especially as wage growth runs below inflation and further erodes real buying power."
The strain on the broader market is further illustrated by pending home sales data. Pending home sales fell 7.3% in September compared to August, and declined 11.3% year over year, ultimately hitting an all-time low, according to the National Association of Realtors® Pending Home Sales report released on Tuesday. Pending home sales, which track contract signings, represent the critical first formal step in the homebuying process and serve as a reliable leading indicator for where actual home closings will land one to two months down the line.
This ongoing economic turmoil and persistent elevation of interest rates have forced industry experts to reevaluate their projections. Lawrence Yun, the chief economist of the National Association of Realtors®, has significantly revised his earlier predictions regarding where the housing market will land by the end of the year.
Back in November 2025, Yun forecasted that existing home sales would rise 14% year over year in 2026 and that median prices would increase by 4%. By April, reality necessitated a downward adjustment; Yun revised his sales forecast down to a modest 4% increase, though he maintained that prices would still climb by 5%.
However, addressing an audience of real estate professionals at a conference in Las Vegas this week, Yun further revised his forecast downward. He now projects that both existing-home sales and prices will increase by just 2% at most this year. The outlook for newly built homes is similarly tempered, with Yun projecting that new-home sales will decrease by 5% year over year.
With traditional 30-year fixed rates hovering at high levels, prospective buyers are increasingly exploring alternative financing structures. In recent weeks, elevated interest rates have pushed more borrowers to pursue adjustable-rate mortgages, which are historically considered riskier due to their potential for future rate resets. Currently, ARM rates sit nearly a full percentage point lower than the average 30-year fixed mortgage rate, and the share of ARM applications held steady week over week at 10.5%.
Loan program distributions within the market show minor fluctuations. The share of FHA loan applications decreased slightly to 16.3% from 16.4% the prior week. Simultaneously, the VA share of total applications decreased to 11.5% from 11.9% the week prior, while the USDA share of total applications experienced a marginal decline to 0.5% from 0.6%.
On the refinancing front, activity remains severely constrained by the vast majority of current homeowners who secured historically low rates years ago and refuse to give them up. The refinance share of mortgage activity increased to 39%, up from 37.7% the previous week. Despite this slight proportional bump, the overall refinance index decreased 2% from the previous week and remained an astounding 59% lower than the exact same week one year ago, as homeowners remain firmly locked into their lower legacy interest rates.
Amid these broader headwinds, NAR reported that home sales rose 1.5% on a monthly basis in September, offering a slight counter-narrative even as overall sales remain down on a year-over-year basis.
Furthermore, a notable silver lining emerged within the demographic data: in September, first-time homebuyers comprised 31% of total sales. This represents an uptick from 30% in both the prior month and the previous year, signaling that determined entry-level buyers may be gaining ever-so-slight ground in a fiercely competitive and expensive market.
How Mortgage Rates Are Calculated
Mortgage rates are calculated based on various dynamic factors rippling through the broader economy, while an individual borrower’s specific loan length and credit score will ultimately dictate the precise mortgage rate they qualify for.
The benchmark 30-year mortgage rate is intrinsically tied to the yield of the 10-year Treasury note. This connection exists because the vast majority of 30-year mortgages are either completely paid off or refinanced within roughly eight to 11 years.
Because that duration makes the timelines roughly comparable, mortgage lenders utilize the 10-year Treasury as a foundational benchmark for setting consumer rates, layering on an additional risk premium to account for market volatility and default risks.
Long-term yields for Treasury notes are themselves determined by a complex mix of variables, including the overall supply of and demand for U.S. government debt, alongside investor expectations regarding inflation over the life span of the bonds.
