Pending Home Sales Hit Near 12-Year Low as Mortgage Rates Top 7%

A housing market stalled by borrowing costs

The fall housing market is losing momentum fast. Redfin reports that U.S. pending home sales fell 4% from August to September on a seasonally adjusted basis. That was the steepest monthly decline in more than three years, and it left contract signings at their lowest level since spring 2014. The only lower reading came in April 2020, when the pandemic briefly shut the market down. 3 Pending sales count homes that have gone under contract but haven't closed, so they are one of the most current signs of buyer demand. The September figure points to buyers stepping back in large numbers. 3

The main cause is mortgage rates. Every major rate tracker shows borrowing costs at or near their highest levels in about three years, though each one measures a slightly different number.

Three measures, one direction

The rate figures differ because each comes from a different methodology and covers a different window.

• The Mortgage Bankers Association's weekly survey put the average 30-year fixed rate at 7.49% for the week ending October 2. 2
• Mortgage News Daily had the 30-year average at 7.6% as of September 30, roughly 15 basis points higher than a week earlier and the highest since November 2023. 4
• Freddie Mac's weekly survey came in lower, at 7.28%. 4

The exact number matters less than the trend. Rates rose about 70 basis points during September alone. 4 That kind of move can push a buyer who was marginally qualified in August out of the market by October.

The increase comes from the bond market. Investors sold bonds over worries about oil prices, future inflation and large government debt loads. The 10-year Treasury yield, which mortgage rates closely follow, briefly reached its highest level since 2002 before pulling back. 4 Zillow senior economist Kara Ng said the bond market "continues to rain on the fall home shopping parade." Zillow has raised its year-end mortgage rate forecast to 7.1%. 4 That forecast still assumes rates will ease somewhat from current levels, so it should be read as cautious optimism, not a sign that relief is close.

Applications confirm the pullback

The MBA's application data shows the same weakness as Redfin's contract figures. Total mortgage applications fell 4.2% week over week on a seasonally adjusted basis for the week ending October 2. 12 Refinance activity was hit hardest. The refinance index dropped 8% in a week and stood 56% below the same week a year earlier. 12 Purchase applications declined 2% on the week and were 15% lower than a year ago. 12 The share of applications for adjustable-rate mortgages held steady at 10.3%. 2 That suggests borrowers have not yet turned to ARMs in large numbers to lower their monthly payments.

The 15% annual drop in purchase applications deserves particular attention. Refinancing nearly always collapses when rates rise. Purchase demand falling this sharply means people who need to move, not just owners hoping to lower their rate, are delaying decisions.

More supply, more walkaways

Redfin's report shows that the slowdown in demand is changing the balance between buyers and sellers. The total supply of homes for sale has climbed to its highest level since March 2020. 3 In September, 14.5% of home purchase agreements fell through, the highest share Redfin has ever recorded. 3 Redfin attributes this to a buyer's market that gives house hunters more room to walk away. 3

That explanation is plausible, but rising rates may be adding to it. A buyer who locked a rate weeks ago, or who expected to lock at a lower one, can face a meaningfully higher payment by closing, and some may cancel for that reason. Either way, a record cancellation rate combined with growing inventory means sellers are losing the leverage they held for most of the past several years.

The takeaway

The data points to a market where demand is falling faster than sellers have adjusted. Contract signings are near decade-plus lows, applications are falling, and supply is at a multiyear high. In conditions like these, price concessions usually become more common, although none of the figures here show prices falling yet. The direction of the market depends largely on the bond market. If Treasury yields keep rising on inflation and debt concerns, mortgage rates are likely to stay above 7%, and the weakness seen in September could last into the winter.

For buyers who can still afford current rates, the conditions are better than they have been in years, with more homes to choose from and more room to negotiate or walk away. Sellers face a market that is less willing to absorb high prices on top of 7%-plus borrowing costs.