• Mortgage applications rose 3.4% last week, the first increase since August, as the 30-year fixed rate eased to 7.37% from 7.41%.
  • September new-home sales slipped 0.6% to a 676,000 annualized pace, while the median price fell 3.9% year over year.
  • Inventory remains elevated at 8.4 months of supply, and builders are cutting prices and offering incentives to lure buyers.

A Modest Rebound in Applications

Mortgage applications increased 3.4% in the latest week, marking the first gain since August, according to the Mortgage Bankers Association. Purchase applications rose 4%, and refinancing activity edged up 3%. The improvement came as the average conforming 30-year fixed rate declined to 7.37% from 7.41%, following a drop from 7.50% the prior week. Despite the uptick, purchase applications remain 18% below year-ago levels, and refinancing is down 61%, underscoring how restrictive financing conditions continue to weigh on activity.

Joel Kan, MBA’s deputy chief economist, noted that rates are still more than a percentage point higher than a year ago. “The modest rebound in applications is a welcome sign, but the level of activity remains historically low,” he said in a statement. The data suggest borrowers are responding to small rate relief, but the broader market is far from healthy.

New-Home Sales and Prices

September new-home sales fell 0.6% to a seasonally adjusted annual rate of 676,000, down from a revised 680,000 in August and 5.3% lower than a year earlier. The pace exceeded the 650,000 median estimate from economists polled by Reuters (TRI), but the annualized figure masks underlying weakness. The median selling price was $400,400, down 3.9% year over year, though up 3.9% from August. Builders are relying on concessions—such as mortgage-rate buydowns and price cuts—to attract buyers, a trend that NAHB chairman Bill Owens said helps but does not fully offset elevated rates and home prices.

Inventory declined slightly to 476,000 units from 481,000, with months’ supply easing to 8.4 from 8.5. However, only 111,000 of those homes are completed and ready for occupancy; the rest are under construction or not yet started. The elevated supply relative to sales pace continues to pressure builders, who are pulling back on new projects. September single-family housing starts dropped sharply, and permits for future construction fell to a 3½-year low, according to Reuters.

The Lock-In Effect and Regional Divergence

A key factor limiting existing-home sales is the “lock-in” effect: about half of existing mortgage borrowers have rates below 4%, according to Federal Housing Finance Agency data cited by CNBC (VSNT). Those homeowners have little incentive to move and take on a new mortgage at today’s higher rates. This dynamic has pushed more buyers toward new construction, but even there, demand is subdued.

Regional data show a mixed picture. Through September, new-home sales were down 9.2% year over year in the West, 1.3% in the South and 0.5% in the Midwest, while the Northeast posted a 2.3% increase. The national figure therefore masks materially different local markets.

Political and International Crosscurrents

Housing affordability has become a prominent issue ahead of the upcoming midterm elections, with high financing costs and home prices featuring in campaign rhetoric. CNBC reported anecdotal evidence that some buyers are waiting for the election outcome before making a purchase. Meanwhile, mortgage rates have been influenced by global financial conditions, including the Middle East conflict, which Reuters linked to an increase of more than 130 basis points in rates since late February.

The Federal Reserve is expected to leave its policy rate unchanged at its meeting later today, but markets will scrutinize the accompanying statement for signals on the future path of rates. No decision has been announced yet.

Outlook Remains Cautious

The latest data offer tentative signs of stabilization rather than a convincing recovery. “Sustained improvement in mortgage rates and affordability would help maintain demand,” said NAHB economist Danushka Nanayakkara-Skillington. But other indicators remain weak: MBA’s September survey found new-home purchase applications down 8.3% from a year earlier, and September pending existing-home sales fell 7.3% month over month, according to the National Association of Realtors.

Builders’ expectations for sales over the next six months fell to their lowest level since April 2012, excluding the early-pandemic plunge, Reuters reported. That signals caution about the future. For now, the combination of a modest weekly rebound in applications and weak broader demand supports a cautious interpretation of stabilization. The next signals to watch are sustained gains in purchase applications, an improvement in sales relative to last year, and inventory declining without a further collapse in construction.

Correction: An earlier version of this article misstated the change in the 30-year mortgage rate. The latest MBA report showed the rate falling to 7.37% from 7.41%, not to 7.41% from 7.50%.