Consumers hesitate despite lower rates, pushing mortgage applications down
Mortgage applications fell last week as consumers grew more cautious about the economy, according to the latest Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey.
The data, covering the week ending February 21, showed a 1.2% drop in overall mortgage application volume from the previous week. On a seasonally unadjusted basis, MBA’s market composite index, which tracks mortgage application volume, declined 4%.
Mortgage rates moved slightly lower, reflecting declines in Treasury yields as consumer spending softened. The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) dropped to 6.88% from 6.93%, marking the lowest level since mid-December.
“Treasury yields moved lower on softer consumer spending data as consumers are feeling somewhat less upbeat about the economy and job market," MBA deputy chief economist Joel Kan said in the report. "This pushed mortgage rates lower, with the 30-year fixed rate decreasing to 6.88%.”
Consumer expectations for inflation have been rising, with the University of Michigan’s February survey showing that Americans anticipate inflation to increase at an annual rate of 3.5% over the next five to 10 years - a level not seen since 1995. This coincided with a steep drop in consumer sentiment, which fell to 64.7 in February from 71.7 in January.
Analysts had anticipated a smaller decline, but uncertainty surrounding trade policies appears to be dampening consumer confidence.
Despite this drop in rates, mortgage application activity remained subdued, with purchase applications unchanged from the previous week and refinance applications posting a small decline.
MBA’s refinance index declined 4% from the previous week, though it remained 45% higher than the same period last year. The seasonally adjusted purchase index remained flat, while the unadjusted purchase index decreased 5% week-over-week but was 3% higher than the same week in 2024.
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“Applications were about 1% lower for the week, which included the President’s Day holiday, as purchase applications stayed flat from a week ago while refinance applications saw a small decline,” Kan pointed out. “Purchase applications were up 3% from the same week last year. Increasing for-sale inventory in some markets has provided prospective buyers more options as we approach the spring homebuying season.”
FHA refinance applications stood out, increasing 8% week-over-week, despite overall refinance activity remaining weak.
Refinance share of total mortgage applications was 38.9%, up slightly from 38.7% the previous week. Adjustable-rate mortgage (ARM) share stayed at 5.4%, unchanged from the prior week. The FHA share of total applications increased to 17.4% from 16.6%. VA loan applications declined to 13.4% from 14.2% and USDA loan applications dropped slightly to 0.5% from 0.6%.
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