The upside to the selloff in stock markets is lower interest rates for the housing market. A drop in rates last week boosted mortgage applications for both refinances and home purchases, and interest rates continues to slide.
Total mortgage application volume for the week ending October 3rd rose 3.8 percent on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association (MBA). Refinance applications were 5 percent higher than the previous week, and purchase applications were 2 percent higher. On an annual basis, however, refinance applications are down 32 percent and purchase applications are down nearly 8 percent.
"The purchase index reached its highest level since July," noted Michael Fratantoni, chief economist for the MBA. "The increase was led by a 3.7 percent increase in government purchase volume for the week."
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.30 percent from 4.33 percent for 80 percent loan-to-value ratio (LTV) loans, according to the MBA. With continued weakness in the stock market Tuesday, rates continued to drop, now nearing their lowest level of the year.
Read MoreHome prices headed for a triple dip
"The most prevalently-quoted conforming 30-year fixed rate for the very best scenarios has moved quickly from being worryingly close to 4.375 percent to being excitingly close to 4.0 percent," wrote Matthew Graham of Mortgage News Daily. "The most interesting thing about the movement of the past two days is that there is no big-ticket headline motivating it. This is simply traders moving money for a variety of reasons. No one can know what all the motivations for that might be."
Lower rates seem to be the only bright side to the housing market today, which is experiencing a drop in demand due to higher home prices and fewer fall listings. While the gains are shrinking, prices are still rising, and higher mortgage insurance premiums are only adding to home buyer costs. All those factors have caused several banking analysts to lower their expectations for home values and home construction, heading into 2015.