The housing market's fall slump is showing up in closed loans, and there may be more pain ahead for mortgage originators.
Existing-home sales plunged 5.5% in October to a seasonally adjusted annual rate of 3.75 million, the weakest pace since August 2010, according to figures released Thursday by the National Association of Realtors. Sales were down 8.8% from a year earlier.
The concern now is that October's decline may be followed by another round of disappointing closings before the year is out.
“The warning signs were already there. Signed contracts hit a record low in September, and we’re seeing closings catching up to what buyers had already stopped doing,” said Sean Fergus, vice president of economic research at NewHomeSource and Zonda.
Builders were seeing the slowdown, too. According to Fergus, 84% of respondents to Zonda's September builder survey reported weaker-than-expected demand.
“We could see further weakness, since buyers who stepped back when rates hit 7.4% in mid-October won’t show up as missing sales until November and December closings,” Fergus said. “Rates have since eased, but buyers need to trust that relief will last before they come back in force.”
More Inventory Isn't Bringing Buyers Back
The October decline was particularly severe in the West, where sales fell 9.7% from September. Transactions dropped 6.5% in the South and 3.2% in the Midwest, while holding steady in the Northeast.
Meanwhile, unsold inventory climbed to 1.59 million homes, up 4.6% from a year earlier. That represents a 5.1-month supply, compared with 4.4 months last October.
Prices have barely budged nationally. The median existing-home price rose 0.4% year over year to $416,700, marking the 40th consecutive month of annual increases.
Affordability, however, has deteriorated. NAR's Housing Affordability Index fell to 100.7 from 107.3 a year earlier, while the average 30-year fixed mortgage rate climbed to 7.33% in October from 6.86% in September, according to Freddie Mac figures cited by NAR.
First-time buyers accounted for just 29% of October sales, down from 32% a year earlier. The decline follows NAR's annual buyer survey showing first-time buyers accounted for a record-low 22% of purchases. Individual investors and second-home buyers, meanwhile, represented 20% of October transactions, up from 16% a year earlier.
That shifting buyer mix matters for lenders competing for purchase business, particularly those focused on first-time buyers or investor financing.
Redfin Sees Little Improvement in Pending Sales
More recent figures suggest the weakness has carried into November.
In its Nov. 12 housing market update, Redfin reported that the median U.S. home-sale price fell 0.9% year over year to $388,613 during the four weeks ending Nov. 8. It was the fourth consecutive week of annual declines.
The median monthly mortgage payment slipped to $2,755, its lowest level in six weeks and down from $2,820 a month earlier.
But pending home sales remained at their lowest level in Redfin's records dating back to 2021, falling 15.54% year over year. Contracts were essentially flat from the previous week.
Buyers have gained some negotiating room, with 21% of listings carrying price reductions. Even so, the modest relief in prices and payments hasn't produced a meaningful pickup in signed contracts.
Buyers Turn to Adjustable-Rate Mortgages
With fixed-rate financing still expensive, adjustable-rate mortgages are getting another look.
Odeta Kushi, deputy chief economist at First American, said the growing ARM share reflects borrowers' efforts to stretch their purchasing power.
“ARMs won't solve the broader affordability challenge, and they won't be the right fit for every buyer,” Kushi said. “But when the gap between fixed and adjustable mortgage rates is wide, they offer a way to reduce initial financing costs and potentially bring homeownership within reach.”
The shift is also evident in mortgage lock activity. Optimal Blue found that ARMs accounted for a record 17% of October rate locks, even as overall lock volume fell 19% from September. The Mortgage Bankers Association separately reported that ARMs represented 11.4% of total applications in the week ending Oct. 30, their highest share since September 2025.
Kushi emphasized that today's ARMs generally feature longer initial fixed-rate periods, adjustment limits, and stronger underwriting requirements than products common before the financial crisis. Borrowers still face the possibility of higher payments when the initial fixed period ends.
Applications Offer a Brighter Spot
Mortgage applications have shown some improvement, although the gains remain modest against last year's volume.
Purchase applications rose 8% during the week ending Nov. 6, according to the MBA's latest weekly survey, as the average contract rate for a conforming 30-year fixed mortgage declined to 7.21%.
Conventional, FHA, and VA purchase applications all increased. Still, unadjusted purchase applications remained 18% below their year-earlier level.
For originators, the improvement offers some encouragement after months of weak demand. But applications have a long way to go before they translate into the kind of purchase volume lenders have been waiting for.
NAR Chief Economist Lawrence Yun sees potential for a rebound if borrowing costs ease.
“Based on the current underwhelming home sales pace at a time of consistent job growth, there could be sizable pent-up demand if mortgage rates decline,” Yun said.
