Is Buyer Demand Waning? Unpacking the Surprising Drop in Mortgage Applications
As we head into 2026, the real estate market is sending some mixed signals. While falling mortgage rates have been a welcome sign for potential homebuyers, a surprising trend has emerged: a decline in mortgage applications. Recent data from the Mortgage Bankers Association shows that mortgage applications fell by 5% for the week ending December 19, 2025, marking the second consecutive week of declines .
This dip in demand, even as borrowing costs become more favorable, raises important questions about the state of the market. Is this a sign of a broader slowdown, or just a temporary blip? In this post, we'll explore the potential reasons behind this trend and what it means for the San Diego real estate market.
The National Picture: A Puzzling Contradiction
The current situation presents a puzzling contradiction. Lower mortgage rates typically spur an increase in home loan applications as buyers look to take advantage of lower monthly payments. However, the recent data suggests that other factors are at play, outweighing the positive impact of lower rates. This indicates a level of caution among potential buyers, who may be weighing other economic factors before committing to a home purchase.
Why the Disconnect? Exploring the Reasons Behind the Trend
Several factors could be contributing to this unexpected drop in mortgage applications:
•Economic Uncertainty: A softening job market and broader concerns about the economy may be leading potential buyers to be more cautious. The decision to buy a home is a significant financial commitment, and in times of uncertainty, some may choose to wait and see how the economic landscape evolves.
•Persistent Affordability Challenges: While mortgage rates have come down, home prices in many parts of the country, including San Diego, remain high. For many, especially first-time buyers, the overall cost of homeownership is still a significant hurdle. The monthly savings from a slightly lower interest rate may not be enough to offset the high purchase prices.
•Holiday Season Slowdown: It is also important to consider the time of year. The holiday season is traditionally a slower period for the real estate market, as people are often preoccupied with travel and family gatherings. This seasonal dip could be contributing to the lower application numbers.
What This Means for the San Diego Market
While San Diego has its own unique market dynamics, we are not immune to national trends. The decline in mortgage applications could signal a continued cooling of the local market, which may translate to more opportunities for buyers. With less competition, buyers may find they have more negotiating power and a wider selection of homes to choose from.
For sellers, this trend underscores the importance of a strategic approach. The days of multiple offers above asking price may be less common, and sellers will need to be realistic about pricing and ensure their homes are well-presented to attract serious buyers.
Navigating the Market in 2026
Whether you are a buyer or a seller, the current market requires careful consideration and expert guidance.
For Buyers: The current environment could present a valuable opportunity. With less competition, you may be able to find a home at a more favorable price. Getting pre-approved for a mortgage now will put you in a strong position to act when you find the right property.
For Sellers: A well-priced and well-marketed home will always stand out. Work with your real estate agent to understand the current market conditions and develop a strategy that will help you achieve your goals.
Your Trusted Real Estate Advisors
The real estate market is complex and ever-changing. As your dedicated San Diego real estate experts, we are here to provide you with the insights and guidance you need to make informed decisions. Whether you are looking to buy, sell, or simply understand the current market, we are here to help.