Housing Market Tilts to Buyers as 7% Mortgage Rates Bite

A buyer's market nobody wants

Sellers in the US housing market have lost the upper hand, but buyers are not stepping in to take it. In September, Redfin counted 63% more sellers than buyers nationwide. That is the widest gap since the brokerage began tracking the measure in 2013, and up sharply from 56.9% in August.34 The number of active buyers fell 2.4% from August to about 928,900, while sellers rose 1.2% to roughly 1.51 million.34 Redfin now classifies a record 41 of the 50 largest metro areas as buyer's markets.38

The problem is financing. Freddie Mac's 30-year fixed rate stayed at 7.40% for several weeks before dipping to 7.32% in the week ending October 22. A year ago it was 6.19%.11 Redfin senior economist Asad Khan summed it up: buyers have leverage because so many would-be buyers have been priced out or scared off, not because demand is strong.34 The data points the same way. Supply looks better than it has in years, and the number of people able to use it keeps shrinking.

How the rate rally reversed

The year began with real hope. In late February, the 30-year average briefly fell to 5.98%, its lowest since late 2022.16 Coverage ties the turnaround to the US war with Iran, which pushed bond yields up worldwide and sent mortgage rates back to 2023 levels.3331 The 10-year Treasury yield, which mortgage pricing tracks, hit its highest level since 2002 before easing.16 It slipped below 5% on October 22 for the first time in about a month.19

Policy has made things harder. In September, the Federal Reserve raised rates for the first time in more than three years, and experts warned that mortgage rates could be slow to come down.31 September consumer prices rose 0.6% from August, putting annual inflation at 3.7%, which leaves little room to ease.23

The cost of the reversal is easy to measure. Compared with February's low, the rate increase adds about $355 a month to the payment on a $400,000 loan.16 Realtor.com estimates that the 74-basis-point jump between late August and October 8 cut a $2,000 monthly budget's purchasing power by 7.2%, or more than $22,000 in home price.40 "Market leverage and purchasing power are moving in opposite directions right now," said Realtor.com senior economist Jake Krimmel.40

Forecasts have moved sharply higher

The clearest split in the coverage is between forecasts made a few weeks apart. Fannie Mae's September 11 outlook had the 30-year rate averaging 6.8% in the fourth quarter. The Mortgage Bankers Association's September 16 forecast also said 6.8%.12 Fannie Mae's latest projection is much worse: an average of 7.4% this quarter and 7.5% in 2027.16 Realtor.com's midyear call for rates to end 2026 at 6.3% now looks out of reach.49 Bright MLS chief economist Lisa Sturtevant has said she expects rates to rise from here.12

This week's eight-basis-point drop is worth noting but small. On a $400,000 loan, it saves about $22 a month.15 Most forecasters now treat rates above 7% as the base case into next year, not a passing spike, and buyers should plan on that.

Prices: still rising, but losing steam

The biggest reason buyers aren't feeling the shift is that prices haven't fallen. The National Association of Realtors (NAR) reported a September median existing-home price of $417,500, up 1.3% from a year earlier. That was the 39th straight month of annual gains.41 NAR chief economist Lawrence Yun said it was the highest median ever recorded for a September.42 Redfin's own measure, a median sale price of $393,895, also rose 1.3%.43

Under the surface, prices are getting weaker. Annual price growth slowed from 1.6% in August, which is below the pace of inflation.3141 The West was the only region where the median fell, down 0.3% to $613,600. The Northeast rose 4.7% to $523,600.41 The median list price has fallen from a year earlier for 11 months in a row.49 About 21% of sellers cut their asking price in the four weeks through September 20, the highest share for that time of year in Redfin's records. Realtor.com found price cuts at a four-year high.33

Sources disagree on how soon closing prices will follow. The National Association of Home Builders expects more inventory to push resale prices down in most markets.46 Bill McBride of CalculatedRisk says rising supply and weak demand will put prices under pressure.5 Reuters notes that a national housing shortage still supports prices.30 The more likely outcome is flat or slightly negative national prices, with sharper drops in the Sun Belt. A broad crash is unlikely while many owners are still holding pandemic-era mortgage rates.33

Sales stuck near the bottom

Existing-home sales rose 1.5% in September to an annual rate of 3.99 million but were down 2.2% from a year earlier.41 Yun discounted the monthly gain because August was revised lower. He said the market is "scraping to the bottom" of its range.42 August and September were the two slowest months of the year.44 Inventory reached 1.60 million homes, the most since November 2019, or 4.8 months of supply.4746

The September gain may be the last good news for a while. Those closings mostly reflected contracts signed in July and August, when rates were near 6.7%.49 Pending sales, which come earlier in the process, fell in September to the lowest level in NAR data going back to 2011.10 Sales did rise 4% from a year earlier for homes priced at $1 million or more, the only price range to grow.42 That fits reporting that buyers with lots of home equity or cash face less competition, while buyers who depend on financing step back.31

Mortgage demand keeps falling

Mortgage applications are the strongest sign that demand is getting worse. In the week ending October 16, MBA's composite index fell 5.3%. Purchase applications dropped 7% from the week before and were 18% below a year earlier. That happened even though MBA's contract rate fell to 7.41% from 7.50%.1 "Higher rates are pricing buyers out of the market," said MBA economist Joel Kan.1 Refinance activity was 59% lower than a year ago.2

Sources read the numbers differently. Mortgage News Daily had expected the mid-October drop in rates to lift applications.8 It didn't. Wolf Richter counts seven straight weekly declines in purchase applications, bringing them back to the lows of 2023 and 2024 and 47% below the same week in 2019.10 The Xactus Mortgage Intent Index, which tracks lender credit checks, is about 25% below last year. Part of the latest drop reflects a federal holiday.1

Borrowers are trying to cut payments where they can. Adjustable-rate loans made up 10.5% of applications, the highest share in a year, priced almost a full point below 30-year fixed loans.18 First-time buyers were 31% of September sales.46 Reuters notes that a healthy market usually needs about 40%.47

Builders pull back

Homebuilders are reacting the way the demand data suggests they would. Housing starts fell 5.2% in September to an annual rate of 1.221 million, down 7.4% from a year earlier.21 That was well below the roughly 1.30 million economists expected.22 Single-family permits, which signal future construction, fell 4% to 845,000, the lowest since March 2023.24 The NAHB/Wells Fargo builder confidence index dropped to 29, its lowest since June 2012.29 In October, 43% of builders cut prices, the highest share since 2020.19

The Census Bureau warns that the monthly drop in starts is not statistically significant because the margin of error is wide.29 Even so, several measures point the same way. Permits are falling, builder sentiment is the lowest in 14 years, and unsold new homes are piling up. Together they suggest a real slowdown, not noise.30 Over time, that could squeeze supply again just as existing-home buyers gain leverage.29

Where buyers have the edge

The shift is uneven. All 13 of Redfin's strongest buyer's markets are in the Sun Belt. In Miami, sellers outnumber buyers by 158.9%.3438 Rising HOA fees and insurance costs are adding to the pressure in Florida.38 Realtor.com's Market Clock now reads 4 o'clock nationally, meaning late balanced and moving toward buyers. Sixteen of its 18 Midwest metros, however, still favor sellers.40

Many buyers are saying the same thing. A Grand Junction, Colorado, renter who was approved for a mortgage told CNN there was "no rush, not at this price."31 At current rates, that caution is reasonable. Buyers have more bargaining power than at any point in the past decade, but until financing costs fall from levels most forecasters now expect to last into 2027, many won't be able to use it.1634