Mortgage rates fall for first time in two months — but buyers aren't coming back

For the first time in over two months, mortgage rates moved in the right direction — and the housing market barely noticed. Freddie Mac reported that the average 30-year fixed-rate mortgage dropped to 7.32% for the week ending October 22, compared with 7.40% the week before. That marked both the first week-over-week decrease since late August and the sharpest single-week decline since July. It was not enough.

Seasonally adjusted figures from the Mortgage Bankers Association showed total mortgage application volume down 5.3% last week from the week prior. Home-purchase applications slid 7% on the week and sat 18% below their level from the same period a year earlier. Refinance applications fell 2% week-to-week and were 59% below year-ago levels — a smaller weekly drop than in recent weeks when rates were still climbing, but a figure that underscores how little room there is for refinancing when rates are more than a full percentage point above where they were a year ago.

Mortgage rates decreased for the first time in over two months. However, lower rates were not enough to boost application activity, as both purchase and refinance applications continued to decline.— Joel Kan, MBA VP and Deputy Chief Economist

The rate decline follows seven consecutive weeks of gains that pushed the 30-year fixed rate to multi-year highs. During that period, the 30-year fixed rate rose from 6.66% in late August to 7.40% on October 8; Realtor.com calculated that the run cost buyers 7.2% of their purchasing power. One week's modest reversal does not undo that damage.

Mortgage rates edging down is welcome news, but we should not get carried away, as today's modest decline does not put much of a dent in this fall's surge that saw rates climb 74 basis points in just over a month.— Jake Krimmel, Senior Economist, Realtor.com

The driver behind the rate dip is the 10-year U.S. Treasury yield, which pulled back as investors moved toward the relative safety of government bonds amid stock market volatility, concerns about artificial intelligence valuations, rising oil prices, and the ongoing U.S.-Iran conflict. Realtor.com data put the 10-year yield at an average of roughly 5.13% over the past several days, a retreat from 5.24% the week before. By Thursday morning it had dipped below 5%, which analysts said could push mortgage rates slightly lower in the coming days.

The rate move also coincided with a string of weak housing data. September housing starts fell 5.2% from the prior month and 7.4% from a year earlier, the U.S. Census Bureau reported. Signed contracts, which offer a real-time read on buyer activity and reflect the period when rates were at their peak, fell to their lowest level on record, the National Association of Realtors said. Realtor.com's own data showed contract signings down 9.8% year-over-year.

The damage to the fall housing market is already done. Buyers may be gaining power at the negotiating table as the pace of sales slows, but that leverage has come at the expense of affordability.— Anthony Smith, Senior Economist, Realtor.com

On the supply side, the picture is mixed. Inventory has been building throughout the fall, with Realtor.com reporting that the total number of homes for sale was up 7.7% year-over-year — the strongest weekly growth rate since late January. But new listings are also contracting: Redfin reported that new listings fell 1.4% week-over-week and 2.7% year-over-year as of October 22. At $415,000, the median asking price was unchanged from the week before.

A key reason supply remains constrained is the mortgage rate lock-in effect. According to a Realtor.com report, 65.6% of all outstanding mortgages carried a rate of 5% or lower as of the second quarter — meaning the vast majority of existing homeowners have little financial incentive to sell and take on a new loan at today's rates. That share is down slightly from 66.7% the prior quarter, but the shift is slow.

Home sellers have, in the last four years, chosen to sell fewer homes to match the lower quantity demanded. Homeowners are really hesitant to sell at a loss if they don't have to.— Mike Simonsen, Chief Economist, Compass

For buyers who remain active, adjustable-rate mortgages continue to offer a workaround. The ARM share of applications held steady at 10.5%, according to the MBA, with ARM rates running nearly a full percentage point below the 30-year fixed rate.

The Federal Reserve's Federal Open Market Committee is scheduled to meet October 27–28. Investors broadly expect the Fed to hold short-term rates steady at that meeting — CME FedWatch data cited by Realtor.com put the odds of a hold at around 85% for most of this week, up from 42% a month ago. However, the odds of a rate hike at the December meeting have hovered near 90%, suggesting bond markets have already priced in a pause now and a move later. That dynamic leaves the trajectory of mortgage rates — and the floor they may or may not have reached — as the central open question for the housing market heading into winter.

So the question moving forward with the 10-year, and with mortgage rates by extension, is how high the floor is for rates over the next several months and whether we are already there or still have somewhere to go.— Jake Krimmel, Senior Economist, Realtor.com

Why it matters — With rates still above 7% and the Fed likely to raise again in December, anyone buying, selling, or refinancing a home this fall is navigating the most expensive borrowing environment in years — and one week's rate dip has done little to change that calculus.

Sources differ on Year-over-year home price change: -2% year-over-year (Q3) (realestatenews.com (citing ATTOM)) vs +0.2% year-over-year (realestatenews.com (citing Redfin)) vs +1.2% year-over-year (realestatenews.com (citing Zillow)) vs -1.2% year-over-year (pending sale prices) (realestatenews.com (citing Compass))

Reported by cnbc.com, realtor.com, realestatenews.com