Housing Market Slump Deepens as Pending Sales Hit a Record Low

A brief rate dip doesn't change the picture

The U.S. housing market got a small break from borrowing costs this week, but little else improved. Freddie Mac's 30-year fixed-rate average fell to 7.32% in the week ending October 22, down from 7.40% the week before. A year earlier, the same measure was 6.19%.32 The 7.40% level had held for two weeks and was the highest reading since late 2023.31 This was the first weekly drop since late August.39 For a sense of scale, the eight-basis-point decline cuts the monthly principal-and-interest payment on a $400,000 loan by about $22.39

Nearly every other indicator released in October points the wrong way. Contract signings fell to a record low, purchase mortgage applications kept falling, builder confidence sank to a 14-year low, and the main forecasters raised their mortgage-rate projections for next year sharply. Taken together, the data describe a market where the number of sales is collapsing faster than prices can move, and a one-week rate dip doesn't change that.

Mortgage demand: lower rates, fewer applications

The Mortgage Bankers Association's weekly survey showed how much damage had already been done before rates eased. For the week ending October 16, total applications fell 5.3% on a seasonally adjusted basis. The purchase index dropped 7% from the prior week and ran 18% below the same week a year earlier. The refinance index was down 59% year over year.1 This happened even though the MBA's conforming 30-year contract rate fell to 7.41% from 7.50%. Joel Kan, the MBA's deputy chief economist, said higher rates were pricing buyers out and had clearly cooled the fall market.1

Other reports point the same way. Xactus, which tracks credit pulls by lenders, said its Mortgage Intent Index fell to 96.9, about 25% below a year earlier.2 Wolf Richter counted seven straight weeks of declines in purchase applications. By his math, purchase applications are 47% below the same week in 2019, which puts them back near the lows of 2023 and 2024.10 The refinance share rose to 39% of applications. That is not a sign of a refinance revival: it went up only because purchase activity shrank faster.4 Adjustable-rate loans held at 10.5% of applications, since ARM rates were nearly a full percentage point below the 30-year fixed.1 That is what stretched borrowers tend to do when fixed rates get too expensive.

Home sales: thin closings now, fewer contracts ahead

Existing-home sales for September looked better on the surface than they were. The National Association of Realtors reported a 1.5% monthly gain to a seasonally adjusted annual rate of 3.99 million, down 2.2% from a year earlier.11 Economists polled by Reuters had expected a decline.20 However, NAR revised August down to 3.93 million. Chief economist Lawrence Yun said he would discount the monthly gain and that August and September were the two weakest months of the year.13 He also said that supply is no longer the problem and that demand is now what's shrinking.13

The forward-looking numbers are worse. NAR's Pending Home Sales Index fell 7.3% in September to 66.0, the lowest reading since the series began in 2001, and was down 11.3% from a year earlier.44 Economists had forecast a 0.5% decline.44 Bloomberg reported that the drop was bigger than any estimate in its survey.48 Contracts fell in all four regions, with the West down the most at 9.2% for the month and 15% for the year.46 Signed contracts usually close within one to two months, so October and November closings are now under pressure.46

New construction is weakening too. Housing starts fell 5.2% in September to a 1.221 million annual rate, and single-family permits dropped 4%.46 The National Association of Home Builders' confidence index fell to 29, its lowest since 2012. Forty-three percent of builders cut prices in October.46

Home prices: steady prices, softer real values

Prices are where the coverage disagrees most, and the disagreement helps explain the market. NAR's September median existing-home price was $417,500, up 1.3% from a year earlier. That was the 39th straight month of annual gains11 and the highest median on record for a September.13 The S&P Cotality Case-Shiller National Index, which runs on a lag, rose 1.9% year over year in July. The 20-City Composite rose 2.5%.25 FHFA's index showed a 2.6% annual gain.27

Those gains look weaker after inflation. Case-Shiller said home values fell in real terms for a 14th straight month in July, because consumer prices rose 3.4%.25 Regional gaps are large. Chicago was up 6.9% while Seattle was down 1.6%, and Eastern metros generally outperformed Western ones.22 NAR's regional data show a similar split: the Northeast median rose 4.7% in September and the West's fell 0.3%.11

Some of NAR's headline median also reflects the mix of homes being sold. Sales fell from a year earlier in every price band except homes priced at $1 million or more, where they rose 4%.13 When more expensive homes make up a larger share of sales, the median rises even if individual homes aren't gaining value. Measures of different things also give different numbers. Realtor.com's September median list price was down 1.4% from a year earlier. In August, Redfin's median sale price was about $30,500 below NAR's.19 Zillow said 27.4% of listings had price cuts in September, up from 26.2% a year earlier.53

Analysts disagree about what comes next. Yun argues that the small number of distressed properties is keeping prices steady, and that buyers and sellers may simply be waiting for better rates.41 Distressed sales were 2% of September transactions.20 Bill McBride of Calculated Risk sees the opposite risk. Altos Research data show inventory up 5.3% from a year earlier while demand weakens, and he expects that to push prices down as rates hover near 7.5%.6

The McBride view looks more likely. NAR counted 1.60 million homes for sale, the most since November 2019, or 4.8 months of supply.13 Median time on the market rose to 33 days from 31 in August.20 Yun himself told sellers they may need to offer price cuts and other incentives.18 A sudden drop in nominal prices still looks unlikely as long as forced sales stay rare. But flat nominal prices with continued real declines, plus more concessions, seem to be where the market is already heading. A Phoenix agent described local prices as flat and said buyers are increasingly asking sellers for credits to buy down their rates.43

Who is still buying

The buyers still in the market point to an affordability problem more than a confidence problem. First-time buyers were 31% of September sales. Reuters noted that a healthy market typically needs about 40%.20 Individual investors and second-home buyers rose to 20% of transactions from 15%. Cash deals were 27%, down from 30% a year earlier.20 NAR's affordability index slipped to 105.4 from 106.7.13 One Florida example shows the cost: on a $373,500 loan, today's rate adds about $281 a month compared with a year ago.31

Mortgage rate forecast: no relief priced in for 2027

Forecasters now expect rates to stay high. Fannie Mae's October housing forecast projects the 30-year rate at 7.4% in the fourth quarter and 7.5% in every quarter of 2027. Its September forecast had called for 6.8% and 6.7%.53 The MBA is a little less pessimistic, at 7.3% at the end of 2026 and easing to 7.1% by late 2027.51 Both expect rates to stay above 7% through next year.51 TD Cowen had forecast about 6.8% by year-end, but that projection came before September's inflation report.53

The main driver is the bond market, not housing. Consumer prices rose 3.7% in the year through September, with energy prices up 20.4%.31 The Federal Reserve raised rates by 25 basis points in September, its first increase in more than three years.53 Reuters linked the climb in Treasury yields to inflation driven by the U.S.-Israeli war with Iran.44 The 10-year Treasury yield was trading around 5.1% in mid-October.36 Fannie Mae assumes 5.3% through 2027, which is why its forecast is the higher of the two.51

The forecasts also have timing problems. Fannie Mae's rate assumptions were set on September 30.57 Rates then rose further before easing this week. Yun has said mortgage rates may be close to peaking, since they have climbed far more than the Fed's own hikes, but he also called the inflation outlook highly uncertain.46

What this means

The overall picture is consistent. With rates above 7%, the market is adjusting mainly through fewer sales rather than lower prices. The record low in pending sales, purchase applications 18% below last year, and refinancing down by more than half all show the same thing. Policy changes may help at the margins. CNBC reported on a new executive order targeting mortgage-insurance and refinance costs35, but it does not lower the benchmark rate.

The next data to watch are the Case-Shiller report on October 2721 and NAR's October closings, which will show how few of September's contracts actually closed.46 One weekly rate decline isn't a recovery, and the forecasts don't assume one is coming. Until inflation and Treasury yields come down, buyers are likely to keep waiting, inventory is likely to keep rising, and sellers will probably have to give up more on price and concessions.