Still, overall application volumes dropped for a third straight week, with the MBA's Market Composite Index falling a seasonally adjusted 2.1% for the seven days ending Oct. 27. The index, a measure of activity based on surveys of the trade group's members, also remained 19.1% below the level of a year ago. 

"The impact of higher rates continued to be felt across both purchase and refinance markets," said Joel Kan, MBA vice president and deputy chief economist, in a press release. "Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023."

Average interest rates among MBA members are now close to 30 basis points lower month over month, despite easing last week, Kan said. The 30-year contract fixed rate for conforming loans with balances of $726,200 or less in most U.S. markets, slipped 4 basis points to 7.86% from 7.9% in the prior survey. Borrowers typically used 0.73 in points to buy down the rate compared to 0.77 a week earlier for 80% loan-to-value ratio loans.

With the recent run-up in rates, ARM activity is seeing a resurgence. Despite the dip in overall volume, adjustable-rate mortgage applications increased in both conventional and government markets, as borrowers sought relief at the beginning of their loan term. The ARM Index shot up 9.8% on a seasonally adjusted basis. At the same time, the share of ARMs relative to total volume grew to 10.7% from 9.5% a week earlier.

Contributing to the uptick was a drop in the 5/1 ARM rate, which decreased to 6.77% from 6.99%. Points used also increased to 1.46 from 0.68. The mortgages carry a fixed rate for the first 60 months before adjusting to market levels.  

But growth in ARMs could not stop the seasonally adjusted Purchase Index from heading downward overall by 1.4%. Purchase volumes also came in 22% lower from the same survey period a year ago, as scarce inventory has stymied the housing market in 2023. But small gains in new listings have also appeared in the past month, according to data from Redfin last week.

The MBA's Refinance Index fell by a larger 3.5%. Compared to year-ago levels, activity came in 11.7% lower, with little refinance interest from most homeowners holding mortgage rates below current levels. The refinance share contracted to 31.2% from 31.4% a week earlier.

With lack of affordability and interest-rate shock turning borrowers away from the mortgage market, average loan sizes declined to their lowest levels in months. The mean refinance amount landed at its lowest point of the year of $241,700. Meanwhile, the average reported purchase size shrank to $407,800, the smallest since mid August. The overall loan-size average across all applications last week came in at $356,100, the lowest amount since early January. 

But the pullback in loan amounts wasn't accompanied by a rise in lower-balance federally backed applications, as might normally be expected. Government volumes, which fell 5.7% on a weekly basis, lagged the overall market. 

"Applications for government loans saw much larger weekly declines than conventional, with government purchase applications down 3% and refinances down 9%", Kan said.

The slowdown also helped to shrink the share of federally sponsored applications over the weekly period. Loans guaranteed by the Federal Housing Administration garnered a 14.7% share compared to 15.2% seven days earlier. Department of Veterans Affairs-backed applications accounted for 10.1%, down from 10.5%, but the share of mortgages sponsored by the U.S. Department of Agriculture edged up to 0.5%, after nabbing 0.4% a week earlier.