US Housing Market Sees Sales Slide Amid High Mortgage Rates and Stubborn Prices

The U.S. housing market experienced a notable slowdown in September, with sales continuing their downward trend as high mortgage rates and persistently high prices sideline potential buyers. Existing-home sales fell 2.2 percent from a year earlier, according to the National Association of Realtors (NAR).

Lawrence Yun, NAR's chief economist, described August and September as the two slowest months for home sales this year. Although sales saw a slight increase of 1.5 percent from August to a seasonally adjusted annual rate of 3.99 million, the market remains under significant pressure from affordability issues.

The number of homes available on the market rose 4.6 percent annually to 1.6 million units, providing buyers with a 4.8-month supply of properties. This increase in inventory gives buyers more choice and negotiating power, as homes are taking longer to sell.

Despite the increased inventory, affordability has not improved. The median existing-home price increased by 1.3 percent year-over-year to $417,500 in September, marking the 39th consecutive month of annual price gains. Simultaneously, the average 30-year fixed mortgage rate climbed to 6.86 percent in September, up from 6.67 percent in August and 6.35 percent a year prior, according to Freddie Mac data.

Yun cautioned that further increases in mortgage rates could prevent more buyers from qualifying for home purchases. He advised sellers to consider price discounts and other incentives to attract buyers, noting that higher inventory and longer selling times are shifting negotiating power.

Data from Zillow corroborates this trend. Newly pending home sales, an indicator of future sales, dropped 8.5 percent year-over-year in September. Zillow's preliminary estimates also showed completed existing-home sales falling 2.5 percent from the previous year to 319,346 units in September, a 5.6 percent decrease from August. The typical U.S. home value saw a modest 1 percent increase year-over-year to $366,913, but the monthly mortgage payment on a typical home, assuming a 20 percent down payment, rose 6.7 percent compared to a year ago, illustrating the impact of borrowing costs.

The share of listings with a price cut increased to 27.4 percent in September, up from 26.2 percent a year earlier. Homes spent a median of 29 days on the market before going under contract, two days longer than both the previous month and the previous year.

The slowdown is also affecting the rental market, with typical U.S. rents rising 2.7 percent annually to $1,932. Mischa Fisher, chief economist at Zillow, noted that the housing slowdown was anticipated due to mortgage rates, but the resilience of the rental market was more surprising. He suggested that buyers priced out of the purchase market are finding rental options more attractive.

Zillow anticipates home sales to remain below year-earlier levels through the fourth quarter. However, a significant drop in mortgage rates could potentially re-energize the market.

Redfin's data indicates an even more pronounced slowdown, with pending home sales falling 4 percent from August to September. The number of homes going under contract reached its lowest level since the spring of 2014, excluding the pandemic-induced freeze in April 2020. Redfin attributed this decline to mortgage rates exceeding 7 percent, which is pricing out buyers.

Pending sales saw significant annual declines in major metropolitan areas, with Seattle experiencing a 24.4 percent drop, followed by Los Angeles at 15.8 percent and San Diego at 15.8 percent. Completed home sales also decreased month-over-month, reaching their lowest point since the end of 2023.

The total supply of homes for sale reached its highest level since March 2020, offering remaining buyers more leverage. Redfin also reported that 14.5 percent of homebuying deals fell through in September, the highest rate on record, indicating buyers' increased willingness to withdraw from deals that strain their finances.

Chen Zhao, Redfin's head of economic research, suggested that for buyers and sellers willing to adapt, the current market presents opportunities. Buyers may find more room for negotiation on price, closing costs, and repairs, with sellers sometimes offering mortgage-rate buydowns. Zhao advised sellers to price realistically and offer flexibility, such as covering closing costs or offering rate buydowns, to attract buyers in a challenging environment.

The current market conditions suggest that while sales are sluggish and inventory is growing, sellers face increasing pressure to accommodate buyer affordability concerns. The slight monthly uptick in sales may offer a temporary respite, but high mortgage rates and affordability challenges continue to keep many Americans on the sidelines.