Mortgage Rates Creep Up, ARM Adoption Rises, and New Home Sales See a July Dip

Welcome to your latest CMRE market update from CMRE! The past couple of weeks have presented a mixed bag for the housing and mortgage markets, painting a picture of buyers adapting to a persistent high-rate environment. While mortgage rates have been on an upward trajectory, impacting refinance activity, we're seeing interesting shifts in how homebuyers are approaching financing and what's happening with new construction.

Mortgage Application Rollercoaster

The Mortgage Bankers Association (MBA) reports a seesaw of activity. For the week ending August 28, 2026, total application volume saw a modest 0.8% increase, primarily buoyed by a 2% rise in purchase applications on a seasonally adjusted basis. This resilience in purchase demand suggests that buyers are continuing to transact, even with rates hovering near 7%. However, the week prior, ending August 21, 2026, painted a slightly different picture, with total applications down 1.0% and purchase applications dipping 0.3%. Refinance demand, meanwhile, has been consistently falling, down 1% for the week ending August 28 and 2% the week before, remaining significantly below year-ago levels.

Rates and Adaptations

Mortgage rates have been climbing, reaching their highest levels in four weeks by August 28, 2026, driven by "investors’ concerns about inflation and growing deficits," according to MBA's Mike Fratantoni. This environment is nudging borrowers towards alternative financing. The share of adjustable-rate mortgages (ARMs) has notably increased, reaching 8.0% of total applications for the week ending August 28, 2026—its highest level in five weeks. This rise coincides with the average rate for a 5/1 ARM falling to 5.94%, offering a more attractive initial rate for some borrowers.

New Home Sales: A July Reversal

After a strong June, the new home market took a step back in July 2026. Sales of new single-family homes fell to a seasonally adjusted annual rate of 607,000, marking a 10.5% decrease from June's revised 678,000. This decline largely erased the previous month's gains, indicating that affordability constraints and elevated mortgage rates continue to challenge builders and buyers alike.

Builders are, however, adding to the inventory. The number of new houses for sale climbed to 488,000 in July 2026, up 1.9% from June. With sales slowing and inventory growing, the implied supply of new homes rose to 9.6 months, up from 8.5 months in June. Pricing signals were mixed, with the median sales price slipping 2.3% to $393,800, while the average sales price increased 4.1% to $508,800—a reflection of changes in the mix of homes sold.

CMRE Outlook

The current landscape underscores a market in constant flux. While high rates continue to suppress refinance activity and temper new home sales, purchase demand shows resilience, with buyers increasingly considering ARMs. As we move forward, monitoring inflation, deficit concerns, and how builders adjust inventory and pricing will be key. Custom Mortgage Real Estate is here to help you navigate these trends, whether you're looking to buy, sell, or refinance.