Lower rates failed to revive applications as borrowers stayed cautious over the holidays
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Mortgage demand ended 2025 on a softer note, with applications in the United States down nearly 10% over the final two weeks of the year, even as borrowing costs eased to their lowest level since September 2024.
For the two‑week period ending January 2, 2026, total mortgage application volume fell 9.7% on a seasonally adjusted basis from two weeks earlier, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.
The holiday‑adjusted Market Composite Index, which tracked closed‑end residential applications across retail and consumer direct channels, captured a period when the MBA did not publish data the prior week, leading to a combined readout for year‑end.
Rate relief met with limited response
Over those two weeks, the average contract rate for 30‑year fixed mortgages with conforming balances of $806,500 or less decreased to 6.25% from 6.32%, with points edging down to 0.57 from 0.59 for 80% loan‑to‑value loans. That's the lowest level since September 2024, yet activity still weakened.
“Mortgage rates started the New Year with a decline to 6.25 percent, the lowest level since September 2024. Refinance applications were up 7 percent for the week but were at a slower pace than in the weeks leading up to the holidays,” Joel Kan, MBA vice president and deputy chief economist, said.
“FHA refinance applications saw a 19 percent increase, although that was a partial rebound from a drop the week before. MBA continues to expect mortgage rates to stay around current levels, with spells of refinance opportunities in the weeks when rates move lower.”
The holiday‑adjusted Refinance Index decreased 14% from two weeks earlier but was still 133% higher than the same week one year ago, reflecting how much lower rate peaks in 2023 suppressed refi volume.
On an unadjusted basis, refinance applications dropped 31% over the two weeks, though they remained 108% higher than a year before.
Federal Reserve governor Stephen Miran urged over 100 basis points of rate cuts in 2026, arguing policy remains restrictive, while Neel Kashkari of the Minneapolis Fed and Anna Paulson of the Philadelphia Fed signaled a more cautious approach.https://t.co/ibq3k1Mosc
— Mortgage Professional America Magazine (@MPAMagazineUS) January 6, 2026
Purchase demand stayed cautious, loan sizes shrank
Purchase demand also softened. The seasonally adjusted Purchase Index decreased 6% over the two‑week period, while the unadjusted Purchase Index fell 23% compared with two weeks earlier but was 10% higher than the same week a year ago.
“The average loan size was $408,700, the smallest in a year, driven by lower average loan sizes across both conventional and government loan types,” Kan said.
The product mix continued to shift as rates drifted down. The refinance share of total applications increased to 56.6% from 53.8% the previous week, while the adjustable‑rate mortgage share slipped to 6.3% of activity, reflecting the reduced appeal of rate risk when fixed‑rate offers eased.
FHA applications rose to a 20% share, VA to 17.3%, and USDA to 0.4%, suggesting some incremental support from government‑backed segments.
The latest figures suggest that while lower rates have reopened pockets of refinance opportunity and kept purchase demand slightly above year‑earlier levels, many borrowers have remained on the sidelines at year‑end.
The data points to a market still driven by rate‑sensitive bursts of activity rather than a broad‑based recovery, with near‑term volume likely hinging on the next round of economic readings and how quickly rates could convincingly break lower.
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