The housing market continues to navigate a challenging affordability landscape. Higher borrowing costs are keeping overall sales volume constrained, yet subtle shifts under the surface—such as increasing inventory and growing demand for adjustable-rate mortgages (ARMs)—are giving active homebuyers new avenues of leverage.
Existing Home Sales Hold Steady at Low Levels
Existing-home sales edged up 1.5% in September to a seasonally adjusted annual rate of 3.99 million, according to the National Association of REALTORS® (NAR). While an increase is a positive step, August and September represent the two slowest months for home sales this year. Sales have hovered near the 4 million annual unit mark since bottoming in late 2023, largely due to elevated borrowing costs that continue to squeeze purchasing power.
Despite sluggish sales, buyers who are actively shopping will find more options. Total housing inventory rose to 1.60 million units in September, up 1.9% from August and 4.6% higher than a year ago. Furthermore, the median time a home spent on the market climbed to 33 days, up from 31 days in August. With homes sitting longer and inventory gradually building, sellers are increasingly open to price reductions, closing cost credits, or rate buydowns to seal deals.
Mortgage Rates Push Applications Lower
Financing costs remain the primary headwind. According to the Mortgage Bankers Association (MBA), the average contract interest rate for a 30-year fixed-rate mortgage reached 7.50% for the week ending October 9, marking its highest level since November 2023.
As borrowing costs ticked upward, total mortgage application volume fell 2.7% week-over-week. Purchase mortgage applications dropped 4% on a seasonally adjusted basis and stood 16% lower than the same period last year. Refinance demand edged down 0.4% week-over-week and remains 56% lower than year-ago levels, held back by high benchmark rates.
Borrowers Pivot to Adjustable-Rate Mortgages
To bridge the gap between elevated home prices and 7.50% fixed rates, buyers are turning to alternative financing structures. The MBA reported that adjustable-rate mortgages accounted for 10.5% of all loan applications for the week ending October 9.
With 5/1 ARM rates averaging 6.54%—nearly a full percentage point below traditional 30-year fixed options—an ARM can offer significant payment relief during the initial fixed period. However, prospective buyers should note that rate relief occurred shortly after the October 9 survey cutoff, setting up the potential for improved application figures in subsequent weekly reports.
What It Means for Buyers and Sellers
- For Buyers: Although benchmark interest rates are elevated, you have more negotiation leverage than you did a year ago. Average days on market have risen to 33 days, and inventory is up 4.6% year-over-year. Ask your loan officer about temporary 2-1 buydowns funded by sellers or examine 5/1 ARM structures to manage initial monthly outlays.
- For Sellers: Pricing realistically is essential. With inventory expanding to 1.60 million units, prospective buyers have choices and will bypass overpriced listings. Offering seller concessions or financing credits can help attract qualified buyers facing affordability hurdles.