Home Prices Fall 0.1% as Rents Turn Positive and Mortgage Demand Sags

A small decline with a big meaning

For more than three years, the U.S. housing market cooled without ever reversing. That changed in late October. Redfin reported that the median home-sale price slipped 0.1% year over year in the four weeks ending October 25, the first drop in more than three years.21 The median sale price for that period was $389,601.30 The brokerage also noted that this was the second straight week of declines, after a 0.2% drop the week before.30

At the same moment, the rental market moved the other way. Apartment List's national median rent reached $1,384 in October, 0.1% higher than a year earlier. That is the first positive year-over-year reading in more than three years.29 Coverage of the two reports agrees on the cause. High mortgage rates and worries about the economy have frozen for-sale activity, and would-be buyers who stay in rentals are firming up demand for apartments.2123

Neither 0.1% move will change any household's budget, and the coverage says as much. Newsweek pointed out that the price dip is too small to win back discouraged buyers, but called it a dramatic reversal for a market where price growth had only ever slowed.22 That framing is right. What matters is the direction, not the size, and the forces behind it are getting stronger rather than fading.

Prices: two datasets, one direction

The headline needs one caveat. The National Association of Realtors still shows prices rising. NAR's September report put the median existing-home price at $417,500, up 1.3% from a year earlier and the 39th straight month of annual gains.31 NAR chief economist Lawrence Yun said it was the highest September median on record.34

The two readings don't actually conflict. NAR counts closings, and as one analysis noted, September closings mostly came from contracts signed in July and August, when Freddie Mac's 30-year rate was close to 6.7%.32 Redfin's four-week data reflects more recent conditions. NAR's own regional numbers also show the shift underway: the West was the only region with a falling median, down 0.3% to $613,600.36 The likeliest outcome is that NAR's monthly figures catch up with Redfin's in the coming months, rather than Redfin's dip proving to be a blip.

The weakness is concentrated in particular places. Redfin's largest annual price declines were in Seattle (-5.1%), San Jose (-4.9%), Austin (-4.6%), Kansas City (-4.3%) and Nashville (-3.3%).22 San Francisco went the other way, with prices up 15%.30 Sellers are also giving ground: 21.5% of listings had a price cut, up from 20.9% a year earlier.30

Mortgage rates are the main driver

Every source on this story points to borrowing costs first. Freddie Mac's 30-year fixed rate averaged 7.24% as of October 29. That was down from 7.32% the week before but well above the 6.17% of a year earlier.22 Rates had peaked at 7.40% earlier in October before falling two weeks in a row.3

The cost to buyers is clear in payments. Redfin estimated the median monthly mortgage payment at $2,786, up 10.7% from a year earlier. That is the highest in its records apart from the week before.30 Falling prices have done little to offset that.

Forecasters expect little relief in the near term. The Mortgage Bankers Association projects a fourth-quarter average of 7.3% for the 30-year rate, and Fannie Mae projects 7.4%.9 Looking to 2027, the MBA sees rates between 7.1% and 7.2%, while Fannie Mae expects an average of 7.5%.9 Short-term forecasters are slightly more hopeful. One base case has the Freddie Mac average sitting between 7.0% and 7.4% in November, with a drop below 7% only possible if jobs and inflation data come in soft.3 Daily trackers show rates a little lower than the weekly survey. Optimal Blue's 30-year reading stood at 7.15% on October 30, its lowest since late September.8

Monetary policy is the reason forecasters are cautious. One forecast describes the Federal Reserve as leaning toward a rate hike, not a cut, with a December increase in its base case.3 Another outlet says softer CPI and PCE readings in November could strengthen the case for a cut.2 The two views clearly diverge. On balance, the forecasts point to rates staying above 7% through year-end, given that both major institutional forecasts sit above 7% and Fed officials favoring a hike are still speaking publicly.49 Buyers waiting for a big drop in rates this winter will probably be disappointed.

Home sales and buyer demand at record lows

Sales figures show why sellers are losing pricing power. Existing-home sales ran at a seasonally adjusted annual pace of 3.99 million in September. That was up 1.5% from August but down 2.2% from a year earlier.31 Yun said August and September were the two slowest months of the year for sales, and warned that rising rates mean fewer buyers can qualify.34 He also said supply is no longer the problem, and that demand is what's shrinking.34

Signed contracts point to more weakness ahead. NAR's pending home sales for September hit their lowest level in 25 years, according to CNBC.21 Redfin's pending-sales measure fell 1.8% in a single week to the lowest level in its records, which go back to 2021. For the third week running, pending sales fell in all 50 of the largest metros.30 Seattle had the steepest annual drop at 31.6%, followed by Atlanta, San Diego, Las Vegas and Denver.22

Supply keeps building as demand falls. NAR counted 1.60 million homes for sale, equal to a 4.8-month supply, and Yun called it the highest inventory since November 2019.34 Redfin estimates there are hundreds of thousands more sellers than buyers nationwide, which gives buyers more negotiating power than they've had in over a decade.30 Some owners are pulling back as a result: new listings fell to their lowest level since January.30 Housing analyst Bill McBride concluded that sales will probably slow further and prices will stay under pressure.15

The gains for buyers are uneven. Realtor.com economist Joel Berner told Newsweek that buyers with plenty of cash or home equity are in a good position. First-time buyers who need a mortgage, though, struggle to find entry-level homes they can afford.22 The softer market mainly helps people who already own homes.

Mortgage applications: a small bounce

The latest MBA weekly survey showed the market reacting to slightly lower rates. Applications rose 3.4% in the week ending October 23, and the MBA's 30-year contract rate fell to 7.37%, its lowest in three weeks.11 Purchase applications gained 4% on a seasonally adjusted basis but were still 18% below the same week a year earlier. Refinance activity was 61% lower than a year ago.11 The MBA's Joel Kan said many buyers have put their purchase plans on hold.12

The most telling number in the survey was the adjustable-rate share. ARMs made up 11.3% of applications, the highest in more than a year, as 5/1 ARM rates fell to 6.41%.11 When borrowers turn to ARMs to lower their first payments, it usually means affordability is stretched. Credit-pull data points the same way: Xactus's mortgage-intent index rose about 2.8% for the week but stayed more than 20% below a year earlier.12 The MBA expects further rate increases in December and early 2027, so a real recovery in applications looks unlikely before the new year.13

Rents: a turn in the cycle, not a spike

The rent story needs careful reading. CNBC and Newsweek both described October as a 0.1% rise.2122 Apartment List's report shows that figure is the year-over-year change. Month to month, rents fell 0.3% in October, a normal off-season dip that was gentler than usual.29 Rents are still about 4% below their mid-2022 peak and are falling once inflation is taken into account.29 The national multifamily vacancy rate stands at 7%, high by historical standards but down from its peak earlier this year.21

Regional patterns are mixed. Sun Belt markets that were overbuilt, including Austin, Phoenix and Tampa, are starting to recover. Phoenix, Las Vegas and San Antonio still show some of the steepest declines.21 The San Francisco Bay Area leads rent growth. CNBC cited 13.1% annual growth for the metro, while Newsweek's city-level list put San Francisco at 24.3%.2122

The bottom line

Taken together, the reports describe a market where high rates are pushing households from buying to renting. Fewer buyers lead to lower prices, more people renting leads to firmer rents, and owners with low-rate mortgages stay put. Apartment List's view that the rental market is returning to balance and Redfin's finding that buyers have the most leverage in a decade are two sides of the same shift.2930 Mortgage rates are forecast to stay above 7% into 2027. Until that changes, modest price declines and slowly rising rents are more likely to persist than reverse.9