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    US mortgage applications dropped by 1.2%, while mortgage rates rose to 6.64%

    by VT Markets
    /
    Sep 3, 2025
    The Decline in Mortgage Applications Mortgage applications are dropping, especially for home purchases, highlighting ongoing challenges in the housing market. Although 30-year mortgage rates have slightly decreased to 6.64%, they are still too high for many new buyers. This trend shows that rising interest rates are affecting the overall economy. This data adds more weight to the argument that the Federal Reserve should hold off on changing rates at their meeting in September. The recent jobs report from August, showing a modest increase of 160,000 jobs and a slight rise in the unemployment rate to 4.0%, supports the idea of a slowing economy. Additionally, inflation data from July 2025 shows core CPI easing to 3.4%, giving the Fed more leeway to pause. The Case for Stable Interest Rates For traders, this reinforces expectations for stable or lower interest rates in the near future. Options on Treasury futures now have a nearly 95% chance of no rate hike in September, according to CME Group data. Many are now wondering when the first rate cuts will occur, possibly in early 2026. The weakness in the housing market also opens up opportunities in equity derivatives, particularly for protecting against losses with homebuilder ETFs like ITB and XHB. We recommend put options on these funds as a way to prepare for further declines in new home construction and sales. With the purchase index consistently falling, builders may struggle to maintain earnings in the upcoming quarters. We experienced a similar situation in 2023 when mortgage rates exceeded 7%, leading to a significant drop in existing home sales to the lowest levels in over a decade. This historical downturn highlighted how sensitive the housing market is to financing costs. Until rates drop further, we can expect housing activity to hinder overall economic growth. Create your live VT Markets account and start trading now.

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