As mortgage rates hover near 7%, some homebuyers are pulling back from the housing market while others opt for riskier, adjustable-rate loans.
In the week ended Friday, mortgage applications declined 1.5%, marking the third straight week of weaker borrower demand, according to data released on Wednesday by the Mortgage Bankers Association.
The overall drop in demand was driven by a weekly slowdown in both refinance and purchase activity. Both refinance and purchase activity slowed compared to a year ago, too, with refinances at their slowest pace since February 2025.
At the same time, though, the share of applications for adjustable-rate mortgages climbed to nearly 10% — a potential signal that homebuyers are looking for alternative ways into the market as affordability worsens.
“Mortgage rates vaulted higher last week,” Mike Fratantoni, chief economist at the trade association, said in a statement. “With fixed rates much higher, more borrowers opted for ARMs.”
More borrowers are opting for riskier mortgages
Indeed, the 30-year, fixed-rate mortgage is currently at its highest weekly average since January 2025, according to data from mortgage giant Freddie Mac.
As of Tuesday, Mortgage News Daily had the loan at 7.17%. Meanwhile, the 7/6 ARM was asking 6.72% — some 45 basis points lower.
Unlike fixed-rate mortgages that come with a set interest rate, ARMs are characterized by variable interest rates. An ARM allows a borrower to lock in one rate for a set period — five or seven years, for example — and that rate is usually lower than you would get with a conventional, fixed-rate loan.
ARMs can invite more risk because there’s a chance that when the set period expires, interest rates are higher, leaving borrowers with higher monthly payments.
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Homebuyers have more choice as inventory rises, but mortgage rates keep things slow
Elevated mortgage rates have begun to hamper homebuyer activity – even as the number of homes on the market has climbed.
Indeed, exclusive Homes.com data released Tuesday found that the number of for-sale homes in the U.S. climbed 5.4% in August compared to the same time in 2025. It’s a shift that should create more opportunities for buyers, but any such shift has yet to come into fruition.
It’s at least in part due to the mortgage market, according to Brad Case, chief residential economist for Homes.com.
"With mortgage rates this high, we're just going to run out of people who say, 'I need to get into the right house regardless of mortgage rates,'" he told Homes.com News in an earlier interview. "We're going to get back to a situation where people are saying, 'I'd love to buy, but not at rates this high.'"
Data from the National Association of Realtors reflects the same trend: On Thursday, the group released its latest pending home sales data, reporting a 4.7% decrease in contracts signed in August compared with a year ago.
The data measures contracts signed for home purchases and is typically viewed as a leading indicator of the health of the overall market."The housing market is still sluggish," NAR Chief Economist Lawrence Yun said in a statement.
"This is due to higher mortgage rates offsetting the increased buying power created by job gains and income growth outpacing home price growth.”
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