Edgen Stock·Oct 17 2025, 03:27Despite a slight decrease in mortgage rates, demand for home purchases continued its decline for the third consecutive week, driven primarily by elevated home prices rather than interest rates.
U.S. housing market activity showed further contraction in the latest reporting week, with purchase mortgage applications declining for the third consecutive week, according to data released by the Mortgage Bankers Association (MBA). This decrease occurred despite a slight moderation in the average 30-year fixed mortgage rate.
For the week ending October 10, 2025, the Market Composite Index, a measure of loan application volume, decreased by 1.8% on a seasonally adjusted basis from the previous week. The seasonally adjusted Purchase Index saw a 3% decline week-over-week. Compared to the same week in 2019, purchase mortgage applications were down a substantial 34%.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances edged down slightly to 6.42% from 6.43% the prior week. This marginal rate reduction did not stimulate a rebound in buyer activity.
"Mortgage rate movements were mixed last week, with the 30-year fixed rate decreasing slightly to 6.42%. Mortgage applications were lower than the week before, as conventional and VA applications saw declines," said Joel Kan, MBA's Vice President and Deputy Chief Economist.
The persistent decline in purchase applications suggests a "buyers' strike" in the housing market, primarily driven by high home prices rather than current mortgage rates. While current rates are at the lower end of the pre-Quantitative Easing (QE) historical range, the cumulative surge in home valuations over recent years has significantly eroded affordability. The Federal Reserve's past policies, which pushed mortgage rates far below inflation during a period of rising prices, are cited as a key factor in the rapid appreciation of home values.
The bond market's reaction to perceived laxity from the Fed regarding inflation in late 2024 and early 2025, which saw mortgage rates jump by 100 basis points, highlights the sensitivity of long-term yields. Even with recent rate cuts, the Fed's "careful" approach and concerns about "rising inflation" indicate a cautious stance, aiming to prevent another spike in long-term yields that could further destabilize the housing market.
The continued weakness in purchase applications serves as a leading indicator for future home sales, which are anticipated to remain subdued. This sustained lack of demand points to a significant rebalancing of housing valuations as buyers remain on the sidelines.
Existing homeowners face a substantial disincentive to sell, with more than 80% of borrowers holding mortgages at rates significantly lower than current market rates. This "lock-in" effect contributes to a dearth of housing supply, further exacerbating market stagnation. J.P. Morgan Research anticipates the U.S. housing market to remain largely frozen through 2025, with existing home sales remaining exceptionally low and only modest price growth of around 3%.
The immediate future for the housing market appears to involve continued low transaction volumes and potential softening of home prices in some segments. Key factors to monitor include future actions by the Federal Reserve regarding interest rates, broader economic indicators, and any shifts in the dynamics of home prices relative to affordability. Until mortgage rates recede significantly, potentially below 6% or even 5% as some analysts suggest, and home prices adjust to meet buyer affordability, the "buyers' strike" is likely to persist, impacting not only the real estate sector but also broader economic consumption and wealth indicators.
