Mortgage Rates Hold at 7.4% as Home Sales Stall Under 4 Million

A market that has changed direction

The U.S. housing market is moving away from the seller-dominated pattern of the past few years. Prices are still rising, but buyers now have more homes to choose from, and that is happening because demand is falling, not because buying has become easier. September data and the latest weekly mortgage readings point the same way. Borrowing costs are back near three-year highs. Sales are stuck near the lowest levels of the decade, and the pool of qualified buyers keeps getting smaller.

The main story for American buyers is that the hoped-for drop in rates has not come, and forecasters have stopped expecting it soon. Higher borrowing costs mostly cancel out the leverage that a slower market gives buyers.

Home sales: slightly better than expected, still weak

Previously owned homes sold at a seasonally adjusted annual rate of 3.99 million in September, according to the National Association of Realtors. That was up 1.5% from August but down 2.2% from a year earlier.11 Economists polled by Reuters had expected a slight decline to 3.95 million, so the result was a modest upside surprise.17 The gain is less impressive than it looks. NAR cut its August estimate to 3.93 million, which made September's increase look bigger, and chief economist Lawrence Yun said August and September were the two slowest sales months of 2026.11

Yun was direct about the cause. He said supply is no longer the main problem and that demand is now what is shrinking.11 For a sense of scale, sales hit 6.89 million in 2021 and fell to about 4.06 million in both 2024 and 2025.20 Associated Press reporting puts the historically typical pace at roughly 5.2 million, so the market is running well below normal.13

The September closings probably understate the problem. Several outlets pointed out that many of these deals were locked in over the summer, when 30-year rates were around 6.5%.20 That means the latest rate jump has not yet shown up in completed sales. Oxford Economics' Nancy Vanden Houten expects the annual pace to stay under 4 million for several quarters if rates stay above 7%.20 The National Association of Home Builders said existing-home sales are likely to stay slow for the next few months, noting that rates have been above 7% since mid-September.19

Home prices: record highs, but the reports differ

NAR's median existing-home price was $417,500, up 1.3% from a year earlier. That was the highest September median on record and the 39th straight month of annual gains.15 Regional results varied. The Northeast rose 4.7% to $523,600, while the West was the only region to fall, slipping 0.3% to $613,600.11 Sales of homes priced at $1 million or more were the only price tier to rise from a year ago.11

The reports disagree on how much supply has grown. Redfin's tracking also shows prices up 1.3% year over year, but with a lower median sale price of $393,895. Redfin counted listings up only 1.7%, compared with NAR's 4.6%, and found homes sold down 4.3%.12 NAR called its 1.60 million listings the most since November 2019.11 NAHB described the 4.8 months of supply as the highest since November 2015.19 Altos Research data show single-family inventory up 4.8% from a year ago but still 5.1% below the same week in 2019.6 Most likely, all of these are true at once. Supply has recovered meaningfully compared with recent years but has not clearly returned to pre-pandemic levels everywhere. Readers should be skeptical of any single claim that the shortage is over.

The direction for prices is clearer. Calculated Risk expects prices to come under pressure as rates approach 7.5%.6 NAHB expects higher inventory to push resale prices down in most markets.19 The Mortgage Bankers Association sees home price growth slowing in 2027 before picking up again in 2028.44 Builders are already cutting effective prices. The median new-home price has fallen below the median existing-home price as builders use rate buydowns and other incentives.20

Mortgage rates: the spike may be pausing, and relief looks distant

Freddie Mac's 30-year fixed average was 7.40% in the week of October 15. That was unchanged from the prior week and ended a run of seven straight weekly increases.22 A year earlier the rate was 6.27%, and the current level is the highest since November 2023.25 Daily data from Optimal Blue show how fast the move happened. The 30-year rate fell as low as 5.90% on February 27 and reached a one-year high of 7.46% on October 5.23 For a $400,000 loan, principal and interest now cost roughly $301 more per month than a year ago.25

The main driver is the bond market. The 10-year Treasury yield reached 5.31% on October 5 before easing to 5.19% by October 14.25 September consumer inflation came in at 3.7% year over year, with gasoline accounting for more than half of the monthly increase.7 Coverage also connects the broader repricing to energy shocks since a war involving Iran began in late February. Before that, Fannie Mae was forecasting rates around 6% for 2026 and 2027.43

The new forecasts are the most important development for buyers. Fannie Mae now expects 30-year rates to average 7.4% in the fourth quarter and 7.5% in every quarter of 2027. A month ago it projected 6.8% and 6.7%.47 The MBA is slightly more optimistic. It sees 7.3% at the end of 2026, easing to 7.1% by late 2027.42 The difference mostly comes down to Treasury assumptions. Fannie expects the 10-year yield to hold at 5.3%, while the MBA expects it to drift toward 4.9%.42 Both agree rates will stay above 7%. The MBA also expects quarter-point Federal Reserve rate hikes in December and early 2027.44 Not every forecaster is this pessimistic. TD Cowen had projected about 6.6% for 2027, but it published that before the hot inflation report.50 MBA chief economist Mike Fratantoni has described 9% rates as a severe scenario rather than the base case.47 In practice, buyers waiting for 6% rates have lost their most likely route to them.

Mortgage demand: buyers backing off and turning to ARMs

Weekly application data show buyers responding to these rates. The MBA composite index fell 4.2% in the week ending October 2 and another 2.7% the following week. Purchase applications were down 16% from a year earlier, and refinance applications were down 56%.3 MBA economist Joel Kan said the higher costs have pushed many potential borrowers out of the purchase market. FHA purchase applications fell 6% in a single week, which suggests first-time and lower-income buyers are being hit hardest.1 The adjustable-rate share rose to 10.5%, the highest since October 2025, as borrowers looked for lower starting payments.7 Xactus's credit-pull index stopped falling but was still about 20% below a year earlier.3

Lenders are cutting their outlooks to match. Fannie Mae now expects 2027 refinance volume of $430 billion, roughly 34% below its 2026 estimate.49 The MBA projects total originations slipping to $1.99 trillion, with purchase lending roughly flat.44 Kan noted that about half of outstanding loans carry rates below 4%.44 Those owners have little reason to sell, which keeps supply from rising faster.

Construction: builders pulling back

The most recent Census data, for August, show housing starts at a 1.275 million annual rate and permits at 1.394 million. Both were down about 2.6% to 2.7% from July.33 Within that total, single-family starts rose 7.6% to 918,000. Census confidence intervals mean none of the monthly start changes were statistically significant.35 The pullback was concentrated in buildings with five or more units, where starts fell to 344,000.36 Completions fell 27.1% from a year earlier, a statistically significant drop that will reduce the supply of new homes ready for buyers in coming months.38 TD Economics expects starts to keep slowing as permits decline and financing costs rise.34 The September construction report is scheduled for October 20.32

What it means for buyers

The market is splitting in two. Buyers with cash, equity or high incomes have more listings, longer days on market and less competition. Investors and second-home buyers rose to 20% of September purchases, and $1 million-plus sales increased.11 CNN has described this as a K-shaped housing market made worse by high rates.28 For buyers who need financing, especially FHA borrowers and first-time buyers, who made up 31% of sales compared with the roughly 40% Reuters cites as typical of a healthy market, 7.4% rates outweigh their improved bargaining position.17

Unless inflation cools enough to bring Treasury yields down, the market is likely to keep losing momentum. More homes will sit unsold, prices will stall in some regions and sales volume will stay low into 2027. That may eventually help buyers, but the relief will come from lower prices and builder incentives rather than from cheaper mortgages.