ARM demand rises as buyers pivot from high fixed rates

With the 10-year Treasury yield at its highest since July 2007, mortgage rates have moved firmly above 7%.

The Freddie Mac Primary Mortgage Market Survey put the 30-year fixed at 7.03% as of Sept. 24, 2026, up 8 basis points from last week's 6.95%. It's the first reading above 7% since the week of Jan. 16, 2025, and a year ago, the rate averaged 6.3%.

As a result, potential buyers looking to scoop up after-season home bargains, are likely to sit out, affecting purchase origination volumes. But those staying in the market may pivot away from fixed-rate mortgages in order to lighten their monthly payments in the short-term.

The adjustable rate mortgage share grew this week to 9.8% from 8.4% according to the Mortgage Bankers Association's  Weekly Application Survey. For the 5/1 ARM, the interest rate was 6.1%.

"I would not attribute this trend directly to last week's Fed rate hike," Michael Nocella, head of U.S. consumer lending at BMO, said." Mortgage borrowers have been navigating elevated rate levels for some time, and demand for ARMs is more likely a reflection of consumers seeking lower borrowing costs and greater payment flexibility in the current environment."

While spreads are close to their historic norms versus the extremely wide levels of the post-pandemic years, depending who is doing the measuring, they are between 190 and 220 basis points.

The 10-year yield closed on Wednesday at 5.11%, up 15 basis points on the day; by noon on Thursday, it was up 5 more basis points to 5.16%. News about inflation, as well as comments from Federal Reserve Gov. Michael Barr about "further policy adjustments," apparently spooked investors, leading to Wednesday's spike.

On Thursday morning, CME FedWatch put investors' views on the probability of a 25 basis point hike in October at 66.4%.

As of 11 a.m. Thursday morning, Lender Price data on the National Mortgage News website put the 30-year fixed at 7.547%; a week ago it was at 7.47%.

In the Freddie Mac Primary Mortgage Market Survey, the 15-year FRM increased by 16 basis points, going to 6.42%, versus last week when it averaged 6.26%. It is also now close to a full percentage point higher than last year, when it was at 5.49%.

Earlier that day, the Mortgage Bankers Association released its Weekly Application Survey, showing the conforming 30-year fixed at 7.12%. Prospective homebuyers are remaining cautious in the face of higher borrowing costs, Bob Broeksmit, the MBA's president and CEO, said in a Thursday morning comment on the survey.  Zillow Home Loans economist Kara Ng echoed that sentiment

"Home shopping season has its perks and trade-offs — buying in the spring and summer brings the freshest options at higher prices, while the fall and winter offer more options, even if some are stale, with the added benefit of price cuts for homes that lingered," said Ng in a Wednesday evening statement. "High borrowing costs can erode those off-season deals."

Both the MBA and Fannie Mae brought down their origination forecasts, while expecting rates in the 6.7%-6.8% range by year-end.

But Judi Kutner, a Florida Realtor and mortgage finance expert at Gorilla Movers, is experiencing an opposite trend.

"When forecasts like these come down while existing home sales still hold near that 4 million pace, it tells me the buyers who are transacting have simply stopped waiting for a better number," Kutner said. "I see this with my own clients: once someone decides the home is right, a 6.8% rate becomes a monthly payment problem to solve rather than a reason to sit out the market."