Last week for the first time in a year mortgage rates fell substantially. According to more recent data from the Mortgage Bankers Association (MBA), homebuying demand has plummeted. The MBA’s seasonally adjusted mortgage application index showed a 1.2% decrease in overall mortgage application volume for the week ending last Wednesday. This was a retreat in purchase activity after four weeks of upward movement.
The entire week saw demand for mortgages to buy homes drop by 3% from the previous week. Even with this recent dip, purchase applications were still strong—17% higher than the same week a year ago. In real terms, mortgage rates are about twice as high this year compared to 2022. As of this writing, they are still 21 basis points above where they were at this time last year.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased from 6.69% to 6.64%. This decrease reflects ongoing adjustments within the mortgage market, although the average contract interest rate now stands at $806,500 or less. The number of points tied to these loans dropped by less than one percent. They fell from 0.60 to 0.59, including the origination fee, for loans with a 20% down payment.
Though every other segment of the mortgage market took a hit, refinancing activity was the exception, up a sharp 1% on the week. Refinance applications were 20% higher than during the same period last year, indicating that some homeowners are taking advantage of current rates. The big jump in refinance applications came entirely from an increase in applications for Federal Housing Administration (FHA) and Veterans Affairs (VA) loans. In contrast, non-conventional refinances went down.
“Refinance applications saw a small increase from the previous week, driven by FHA and VA refinance applications, but conventional refinances declined. The FHA rate is averaging about 30 basis points lower than the conventional rate in 2025, which has made those loans relatively more appealing to eligible borrowers,” – Joel Kan, deputy chief economist at the MBA.
Though the increase in refinancing is relatively small, total borrowing activity is still weak as homebuying has slowed considerably. The recent volatility in mortgage rates has only added to this dynamic. This week, mortgage rates dipped just a tad after important promoting off within the European bond market. This worst-timed increase further complicates the already complicated scenario for first-time homebuyers and existing homeowners trying to refinance.