Demand for mortgages used to buy homes, a leading signal for housing-market activity, slipped again in the latest reporting week ending October 30 and stayed near its lowest level. According to the Mortgage Bankers Association, purchase applications were down 20% from already weak levels a year earlier and 45% below the same week in 2019.
At the same time, mortgage rates fell for a third straight week to 7.30%, according to the MBA. Even so, the decline was not enough to pull demand off those depressed levels. Rates above 7% appear to be the point at which borrowers back away.
Purchase mortgage applications tend to foreshadow “pending” home sales and later “closed” sales. That is a troubling sign, especially because pending home sales in September had already fallen to record lows in the data, and those figures include cash purchases as well.
The average weekly mortgage rate on conforming 30-year fixed loans eased for a third consecutive week to 7.30%, the MBA said.
This benchmark rate has remained in the 6% to 8% range for more than four years, since early September 2022.
In more normal periods, before the Fed’s QE and rate suppression began in 2008, mortgage rates above 7% were viewed as ordinary and for many years were considered low.
The Fed and mortgage rates.
Mortgage rates generally follow yields on mortgage-backed securities, though they run higher, and MBS yields in turn track long-term Treasury yields, also at a spread that shifts over time.
They are not set directly by the Fed’s policy rate, which the central bank left unchanged at 3.75% to 4.0% at its last FOMC meeting. Those policy rates mainly influence short-term borrowing costs, such as repo rates tracked by SOFR, and affect other short-term rates like Treasury bill yields only indirectly.
The Fed can, however, influence long-term rates, including mortgage rates, through its balance sheet. During the pandemic and earlier QE programs that began in 2008, it bought trillions of dollars of Treasury securities and MBS with newly created money. Those purchases pushed down long-term Treasury and MBS yields, which helped drive mortgage rates below 3% in late 2020 and early 2021, even as inflation was accelerating and home prices surged at the fastest pace on record.
The Fed stopped buying MBS in 2022, when its holdings peaked at $2.74 trillion, and it has continued reducing them. Since that peak, it has cut its MBS holdings by $866 billion, leaving a balance of $1.88 trillion.
Over the past two years, the Fed has repeatedly said it wants to eventually eliminate its MBS holdings altogether.
QT ended in November 2025, but MBS continued to roll off the balance sheet as the Fed received passthrough principal payments from them. In December 2025, after QT had ended, the Fed began replacing long-term MBS coming off the balance sheet with short-term T-bills.
The central problem in housing is the huge jump in home prices from mid-2020 through mid-2022. Prices are now too high to make economic sense, especially once carrying costs are included, such as homeowners’ insurance, property taxes, and HOA fees.
Further price gains can no longer be assumed to offset those higher carrying costs, and in many markets prices have already started to fall. That includes single-family homes in a number of larger metro areas.
Renting is now much cheaper in monthly terms in many places, including newly built single-family homes designed for the rental market, which has become one of the strongest trends in real estate and is pulling demand away from home purchases.
Mortgage applications to refinance homes were essentially unchanged at rock-bottom levels for the past five weeks, according to the MBA. They were down 60% from a year earlier and 75% from the same week in 2019, even with mortgage rates edging lower.
Refinance demand usually moves in the opposite direction of mortgage rates: higher rates crush refinancing, while lower rates can trigger short-lived surges.
So far, though, rates have not fallen enough to revive refinancing. With rates still above 7%, that may be the threshold that keeps borrowers on the sidelines.
This chart shows the inverse relationship between mortgage rates and refinance applications:
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