Americans flee mortgage market despite lower rates as lenders tighten grip on credit nationwide

Fewer Americans are applying for mortgages despite lower rates — even as lending standards tighten — signaling that high prices and financial pressures are outweighing modest rate relief.

For the week ending Jan. 2, mortgage applications fell 9.7% from two weeks earlier, a steep drop marking a new low to close out 2025, according to the Mortgage Bankers Association’s (MBA) latest Weekly Mortgage Applications Survey. That’s a roughly 10% decline, meaning fewer people are trying to buy or refinance homes.

“MBA continues to expect mortgage rates to stay around current levels, with spells of refinance opportunities in the weeks when rates move lower,” Deputy Chief Economist and Vice President Joel Kan said in a press release.

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“Purchase applications were 10% higher than the same week a year ago but were down over the week following decreases in conventional and FHA applications,” he continued. “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.”

Additional data released Thursday by MBA shows it’s getting harder to secure a mortgage, even for qualified borrowers, as banks and lenders pulled back in December, offering fewer loan options and requiring more documentation.

The Mortgage Credit Availability Index, which measures how easy it is to get approved for a mortgage, fell 2.6% in December. A decline means lenders are becoming more cautious, and credit availability is now at its lowest level in three months.

“The December decrease reversed gains from the prior two months, driven by a reduction in loan programs, including ARM loans and cash-out refinances, along with a tightening in documentation requirements.” Kan said. “Additionally, the conforming and jumbo indexes both saw declines in December, with the conforming index hitting its lowest level since the survey’s inception in 2011.”

Potential buyers aren’t likely to get much relief in 2026, Realtor.com Senior Economic Research Analyst Hannah Jones recently told FOX Business. Home prices will remain similar to 2025, with affordability challenges continuing to weigh on demand.

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FOX Business’ Daniella Genovese contributed to this report.