Mortgage activity stalled again after borrowing costs climbed to their highest averages of 2026 amid ongoing inflation fears.
In the week ended Friday, overall mortgage demand fell 2.7%, according to the Mortgage Bankers Association. That was driven by a 6% weekly decline in refinance applications and a 3% decline in purchase applications.
Refinances were down 25% from the comparable week a year earlier, falling to their lowest weekly pace since May 2025.
Meanwhile, some borrowers found opportunity for purchases by opting for adjustable-rate mortgages, or ARMs, according to Joel Kan, vice president and deputy chief economist for the mortgage association.
"Purchase applications overall were little changed from last week, but more borrowers have shifted to using ARM loans, with the ARM share of applications at 8.5%, the highest share since June," he said in a statement.
Unlike fixed-rate mortgages that come with a set interest rate, ARMs are characterized by their 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.
"Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets," Kan added.
Grappling with inflation fears
The data underscores the volatility in today's mortgage market — with applications rebounding last week after a 5% decline the week before — as mortgage rates rose to 6.71%, their highest level of 2026, according to Freddie Mac.
It's the result of growing fears surrounding inflation. Those concerns have only been compounded by policymakers' signals that interest rates will likely stay higher for longer and data showing a more resilient economy than expected.
With that in mind, the upward pressure on borrowing costs will likely persist — at least for the immediate foreseeable future — unless something drastic changes, according to Brad Case, chief residential economist for Homes.com.
"Bond investors are worried about inflation, the federal government's fiscal policy, and the federal government's foreign policy," he explained in an earlier email to Homes.com News. "Because of that uncertainty, bond investors demand a higher interest rate before they're willing to make longer-term loans."
This article was originally reported by Moira Ritter for Homes.com News.