US Pending Home Sales Drop 8.5% in September as Mortgage Rates Top 7%

Q: Could shifting to an adjustable-rate mortgage be the secret loophole buyers need to beat today's punishing 7.5% borrowing costs?

An adjustable-rate mortgage can lower the initial payment, but it is not a loophole and it only fits a narrow set of buyers. The appeal is real: ARMs are currently pricing below 30-year fixed loans. Recent market data shows ARM rates roughly 80 basis points lower than fixed mortgages, and one example put a 7/6 ARM near 6.95% versus a 30-year fixed around 7.63%. That gap can materially reduce monthly payments at the start, which is why ARM usage has risen to roughly 10% of applications, the highest share in years. The tradeoff is timing and risk. After the initial fixed period — often five, seven or 10 years — the rate resets based on an index such as SOFR, subject to caps. If rates stay high or rise, monthly payments can jump sharply. That matters in a market where many buyers are already stretched and where affordability, not just psychology, is the main problem. An ARM makes the most sense for buyers who are highly likely to sell, move or refinance before the first adjustment, and who could still afford the payment if rates reset upward. It can also work for borrowers using it as a bridge strategy while waiting for lower rates, but that depends on refinancing actually becoming available later. For most households deterred by today’s 7%-plus borrowing costs, an ARM is not a cure for affordability. It is a calculated bet. Buyers should compare multiple lenders, examine caps and worst-case payments, and avoid relying on future rate cuts to make the loan workable.

3 articles · Updated · Yahoo Finance · Oct 9

September pending home sales fell 8.5% from a year earlier, with homes going under contract at a slower pace as borrowing costs stayed elevated.
Mortgage rates above 7% are sharply limiting demand: John Burns Research & Consulting found only 6% of homeowners and renters would accept a 7.5% to 7.99% mortgage rate.
Rates below 5.5% appear to be the key threshold for a rebound, with nearly half of respondents saying they would be willing to take out a mortgage at that level.
Even a smaller decline helped earlier this year, when mortgage applications picked up noticeably as rates hovered around 6%, underscoring how rate-sensitive housing demand remains.