Refinance volume falls 19% below last year as inflation keeps bond yields elevated
Rising global inflation fears are lifting Treasury yields and mortgage costs with them, nudging more US borrowers toward adjustable-rate products and pushing refinance demand well below year-ago levels.
Total mortgage application volume climbed 0.8% on a seasonally adjusted basis for the week ending August 28, according to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.
On an unadjusted basis, the index slipped 1%.
The modest headline gain masks a sharper story: with the 30-year fixed rate at its highest point in four weeks, the adjustable-rate mortgage (ARM) share of total applications climbed to 8%, its strongest reading in five weeks.
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Rate pressure fuels a shift toward adjustable products
The average contract rate on 30-year conforming mortgages, covering balances up to $832,750, rose to 6.79% from 6.78% the prior week.
Jumbo rates climbed to 6.76% from 6.73%, FHA-backed 30-year loans moved to 6.49% from 6.46%, and the 15-year fixed rate increased to 6.14% from 6.10%.
By contrast, the 5/1 ARM rate fell to 5.94% from 5.98%, widening the spread over the 30-year conforming rate to approximately 85 basis points.
"Mortgage rates reached their highest levels in four weeks as investors' concerns about inflation and growing deficits push yields higher across the globe," said Mike Fratantoni, MBA's SVP and chief economist.
"Another trend we're monitoring is more borrowers choosing ARMs, with the ARM share back to 8% last week, its highest level in five weeks."
Purchase activity edges up; refinancing continues to retreat
The seasonally adjusted Purchase Index rose 2% week-over-week, though the unadjusted figure slipped 0.3% and came in 0.2% below the same period in 2025.
The prior week's data showed applications falling 1% as the 30-year fixed hit a three-week high, making the August 28 purchase gain a modest but notable reversal.
The Refinance Index dropped 1% and stood 19% below year-ago levels, with the refinance share of total applications falling to 41.8% from 42%.
The mid-August data had already pointed to a market with little momentum in either direction, and the late-August figures confirm that pattern has held.
Nicholas Barta, division president at Security First Financial, captured the underlying affordability constraint in a May interview with Mortgage Professional America: "There's not as many people that will qualify to purchase homes, or they can't qualify to purchase the homes that they want because they qualify at a lower level."
Government lending was split. The FHA share fell to 15.9% from 16.2%, while the VA share climbed to 13.6% from 12.8%, its strongest showing in recent weeks.
The USDA share held at 0.5%. "In many local markets, potential buyers have plenty of homes to choose, and this is likely supporting transaction volume," Fratantoni said.
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