Mortgage applications slide 1.2% as purchase demand cools despite lower rates

The U.S. mortgage market lost momentum last week even as borrowing costs edged down again, according to the latest seasonally adjusted survey from the Mortgage Bankers Association (MBA).

Overall activity retreats after a month of gains

Total application volume fell 1.2% for the week ending 28 August 2025, reversing four consecutive weekly increases. The pullback came despite another drop in the average 30-year fixed contract rate for conforming loans — now $806,500 or less — to 6.64%, the lowest level since April. Points on those loans eased to 0.59 from 0.60 for borrowers making a 20% down payment.

Refinancing proved more resilient. Applications to refinance existing mortgages rose 1% from the prior week and were 20% above the same period in 2024. The MBA noted that Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans drove that increase, while conventional refinance activity declined. On average, FHA rates are running about 30 basis points below comparable conventional loans in 2025, making them relatively more attractive to qualified borrowers.

Purchase demand softens amid affordability pressures

Applications for loans to buy homes fell 3% week over week, though they remained 17% higher than one year ago. Inventory has improved compared with 2024, giving shoppers a wider selection, yet national home prices have also climbed, keeping affordability the main obstacle to stronger sales.

“Purchase activity pulled back after a four-week run of increases, as slower homebuying activity led to declines across the various loan types,” said Joel Kan, MBA deputy chief economist, in the survey release.

Rate outlook hinges on incoming economic data

Mortgage rates began the current week fractionally higher following a sell-off in European bonds. Traders are watching several U.S. economic releases, culminating in the monthly employment report due Friday. A stronger-than-expected labor market could push Treasury yields, and therefore mortgage rates, higher; weaker data would likely have the opposite effect.

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For now, borrowing costs remain well below the recent October peak above 8%, but still far higher than the pandemic-era lows that fueled the last refinancing boom. That gap continues to limit the pool of homeowners who can benefit from a rate-and-term refinance, even as modest weekly moves generate incremental interest.

Market participants will also monitor upcoming inflation readings and any guidance from Federal Reserve officials. Although the central bank has signaled a pause in policy tightening, investors remain alert to comments that could reset expectations for the path of short-term rates.

For additional context on how shifting rates influence personal finance decisions, see our recent coverage in the Finance News Update section.

Image credit: Frederic J. Brown | AFP | Getty Images