U.S. Mortgage Applications Slide 9.7% at 2025 Close Even as Rates Ease

Mortgage demand tapered off at the end of 2025, signaling that a modest decline in borrowing costs was not enough to revive activity in the housing market. For the two-week period ending January 2, 2026, total mortgage applications dropped 9.7% on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). The organization combines the final week of December and the first week of January in a single reading because of holiday scheduling, and additional adjustments were applied to smooth seasonal distortions.

The downturn arrived even as the average contract rate for 30-year fixed mortgages with conforming balances of $806,500 or less slipped to 6.25% from 6.32%. That figure, which includes a 0.57-point average fee for borrowers putting 20% down, marked the lowest level since September 2024. Last year, rates peaked above 7.5% before easing in the fourth quarter, yet the recent pullback has not translated into a sustained rebound in loan demand.

Refinancing activity showed the sharpest retreat. Applications to replace an existing mortgage fell 14% over the two-week span, reversing some of the gains recorded earlier in the quarter. Despite the latest slide, refinance volume remained 133% higher than during the comparable week a year ago, when interest rates were near multidecade highs. Government-insured refinance applications, particularly those backed by the Federal Housing Administration, rose 19% after falling in the preceding week, highlighting the sensitivity of that segment to even slight rate movements.

Applications to purchase homes also lost momentum, sliding 6% from the previous two-week period. On a year-over-year basis, however, purchase demand was still 10% higher, underscoring the extremely weak baseline recorded at the start of 2025. The average loan amount for all purchase applications fell to $408,700, the smallest reading in 12 months and a sign that prospective buyers are gravitating toward lower-priced properties or making larger down payments. The decline was evident across both conventional and government-insured loan types.

Lower fixed rates reduced the appeal of adjustable-rate mortgages (ARMs), which generally carry lower introductory rates but expose borrowers to potential increases later in the term. The share of ARM applications fell to 6.3% of total activity, continuing a trend observed since early autumn when fixed-rate offerings began to ease.

Early January brought little additional movement in borrowing costs. A daily survey from industry analytics firm Mortgage News Daily indicated minimal changes in rates to start the week, reflecting a lack of major economic data releases. Market participants are turning their attention to several labor-market indicators and an Institute for Supply Management report on services due on Wednesday. While none of those releases typically shifts mortgage pricing on their own, a consistent pattern in the data could alter expectations for inflation and growth, steering Treasury yields and, by extension, mortgage rates. Investors remain focused on the monthly employment report scheduled for Friday, a release that often sets the tone for rate markets in subsequent weeks.

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The MBA anticipates that mortgage rates will hover near current levels in the short term, creating intermittent windows for refinancing if yields edge lower. However, the organization also notes that sustained improvement in application volume will likely require a more pronounced drop in borrowing costs or stronger growth in housing inventory, both of which remain uncertain. Recent commentary from the Federal Reserve—available in its Federal Open Market Committee statements—suggests policymakers are prepared to maintain a restrictive stance until inflation approaches their 2% target, limiting the scope for a rapid decline in interest rates.

For now, the combination of still-elevated mortgage rates and limited supply continues to restrain home-buying activity, despite gradual improvements compared with the lows of early 2025. Market observers will watch upcoming economic releases and central-bank communications for clues about the path of borrowing costs as the spring selling season approaches.

Crédito da imagem: David Paul Morris / Bloomberg