By Dan Brown
Today’s challenging housing market can be characterized by record unaffordability and low sales. To finance home purchases, most turn to the standard 30-year–fixed-rate mortgage. However, an increasing number of homebuyers have saved money (at least in the short term) through adjustable-rate mortgages. The recent uptick in ARMs caused some analysts to equate today’s market to that seen in the runup to the 2008 financial crisis.
However, ARM activity today represents only a small slice of new originations — and an even smaller percentage of outstanding mortgages. In fact, the share of outstanding mortgages with an adjustable rate is lower today than it was at the onset of the COVID-19 pandemic. The majority of U.S. homeowners continue to hold onto low fixed-rate mortgages that they took out during the refinance boom of 2020 and 2021. This ABA DataBank discusses current housing market trends and provides an update on the ARM market.
Current housing market trends
Challenges in today’s housing market are largely attributable to high mortgage rates, high prices and a lock-in effect for existing homeowners which all contribute to low sales activity. Figure 1 illustrates the drop in existing home sales following the interest rate hikes in 2022.
During the pandemic, inventory shortages were so severe that, at one point, there were more registered real estate agents than homes for sale. Low sales volume since the spring of 2022 has led to a climbing active listing count in the United States (Figure 2). The number of active listings in the U.S. now exceeds one million homes, approaching levels last seen in 2019.
ARM market dynamics
As noted in a prior DataBank, a much higher share of mortgages prior to the financial crisis had adjustable rates than today. Figure 3 shows the number of new mortgages with an adjustable rate and the relative savings available for borrowers that choose an ARM (a 5/1 ARM is a mortgage where the rate is fixed for the first five years and then adjusts annually to the market rate thereafter). As the chart shows, while the savings (the fixed rate minus the adjustable rate) was highest around 2004 and 2022, a much smaller share of borrowers took out an ARM in 2022 than in 2004. This is mainly due to regulatory changes following the GFC — such as stricter ability-to-pay rules and securitization eligibility requirements.
Figure 4 focuses on the 2020-October 2025 period in Figure 3. The share of new mortgages with ARMs has ticked up in 2025 — from roughly 5.5% to just under 9% — drawing attention to the risk of ARMs resetting to higher rates and recollections of the role of ARMs in the GFC. However, this increase is just a small subset of overall mortgage activity and is still within the post-pandemic range of ARM use.
The share of outstanding mortgages with ARMs is even smaller than the share of new mortgages with ARMs. Figure 5 tracks the percent of all outstanding mortgages with an adjustable rate from the beginning of 2020 to the middle of 2025. There were more mortgages with an adjustable rate in 2020 Q1 (5.3%) than in Q2 2025 (4%). This decline is largely due to millions of homeowners locking in historically low fixed rates in 2020 and 2021. In fact, more than half of all outstanding mortgages in 2025 carry rates below 4% which are far below current rates of over 6% as of December 2025 (Figure 6).
Conclusion
Despite recent attention regarding the increase in ARM use, ARMs remain a niche product in a market dominated by 30-year fixed-rate loans. While some borrowers realized savings of over 100 basis points in 2022 by choosing ARMs, savings today are less than 50 basis points. Given ongoing affordability challenges and regulatory constraints, ARMs are likely to remain just a small subset of the mortgage market for the foreseeable future.
Daniel Brown is senior director, economist, in ABA’s Office of Economics and Research. For additional research and analysis from the ABA’s Office of the Chief Economist, please see the OCE website.
