Mortgage rates drop for the first time in 2 months, but demand still falls further

Homes in Daly City, California, US, on Tuesday, May 19, 2026.

Jason Henry | Bloomberg | Getty Images

Mortgage demand took another leg lower, despite a brief respite from rising interest rates.

Total mortgage application volume fell 5.3% last week 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, decreased last week to 7.41% from 7.50%, with points decreasing to 0.75 from 0.83 (including the origination fee, for loans with a 20% down payment.

"Mortgage rates decreased for the first time in over two months," said Joel Kan, an MBA economist in a release. "However, lower rates were not enough to boost application activity, as both purchase and refinance applications continued to decline."

Applications to refinance a home loan, which are most sensitive to weekly moves, fell just 2% week-to-week, a smaller drop than some previous weeks when rates were moving higher. Refinance demand was still 59% lower than the same week one year ago. With rates now over a full percentage point higher than they were a year ago, there is a very small pool of borrowers who can benefit from a refinance.

Applications for a mortgage to purchase a home fell a steeper 7% for the week and were 18% lower from the year before. Buyers are reacting less to the weekly move in rates but more to the overall higher level. A report from the National Association of Realtors Wednesday showed a sharp drop in September pending home sales. These are measured by signed contracts, so it showed the real-time impact of rising rates during the month. Rates remained at that higher level in October.

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For those buyers in the market, a continued high share are opting for adjustable-rate loans (ARMs), which offer lower rates but are considered riskier because they will eventually reset to whatever the market rate is at the end of their term. 

"The ARM share held steady at 10.5 percent, as ARM rates remained almost a full percentage point lower than the 30-year fixed rate, giving qualified borrowers a lower rate option to purchase a home," Kan added.

Mortgage rates haven't done much to start this week, according to a separate survey from Mortgage News Daily. Last week was a particularly volatile week for rates, due to multiple monthly inflation reports. This week the moves have seemed to follow oil prices.

"But we'd caution against placing too much emphasis on the oil price correlation," wrote Matthew Graham, chief operating officer at Mortgage News Daily. "It's been highly unreliable for more than a month."