As the housing market begins to wind down for the cold season, pending home sales are also showing the impact of elevated mortgage rates as contract signings fell across the board, according to the National Association of Realtors® (NAR).
The Pending Home Sales report by NAR for September shows that sales decreased by 7.3% month-over-month, and dropped 11.3% on an annual basis. This is a much more dramatic slowdown of monthly activity compared to August’s report, where pending sales grew by a measly 0.3%.
“Market conditions weakened in September due to fast-rising mortgage rates,” NAR Chief Economist Lawrence Yun said. “Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates.”
Hannah Jones—senior economist at Realtor.com®—also expected pending home sales to falter, mostly in the face of high mortgage rates.
“The fall season typically favors buyers, and this year was no exception, with home asking prices falling for an 11th straight month in September, price reductions ticking higher, and inventory climbing,” she stated. “But with rates reaching their highest level in nearly three years, many buyers couldn’t take advantage of the more favorable market conditions.”
The latest data from Freddie Mac reveals that the average 30-year fixed-rate mortgage has remained at 7.40% for two weeks. Many economists pointed out the “chilling effect” high rates have on the housing market, alongside inflation, which currently sits at 3.7%.
“Given that mortgage rates have already risen much more than the Federal Reserve’s short-term interest rate hikes, mortgage rates could be topping out,” Yun said. “However, increasing energy prices and the resulting inflationary pressure are highly uncertain.”
Regions and metros
All four regions experienced declines on both a monthly and annual basis. The West experienced the greatest monthly drop of 9.2%, followed by the South at 8.2%, the Midwest by 6.5% and the Northeast by 4.2%.
Annually, the picture is similar. Pending home sales decreased 15% for Western states, followed suit by the South at 12%. The only difference between the monthly and annual trends is that the Northeast had a greater decline (9.4%) than the Midwest (8.7%).
“Elevated rates have deteriorated housing market conditions, and this month’s deep freeze in buyer activity could persist until affordability improves,” Jones noted. “The local data confirms that higher rates are impacting buyers throughout the country, even in markets that have shown consistent strength.”
Locally, pending home sales fell year-over-year “even in the strongest markets,” according to the report. For the 50 largest metros, Southern and Northeastern cities had the top 10 smallest annual declines.
- Nashville, Tennessee (-2%)
- Hartford, Connecticut (-2.1%)
- San Francisco, California (-3.5%)
- San Jose, California (-4.6%)
- Buffalo, New York (-5.6%)
- Richmond, Virginia (-5.8%)
- Austin, Texas (-5.9%)
- Pittsburgh, Pennsylvania (-6.2%)
- Memphis, Tennessee (-6.3%)
- San Antonio, Texas (-7.1%)
With declines on all fronts, the 2026 housing market is shaping up to have a mediocre end.
“Markets are pricing in the possibility of another Fed rate hike before the end of the year,” Jones said. “Against that backdrop, buyers will likely keep facing tough affordability conditions through year-end, especially as wage growth runs below inflation and further erodes real buying power.”
Buyers aren’t the only ones struggling across the nation, as housing construction faces severe headwinds from high costs and labor shortages. According to the latest data, builder confidence is at its lowest point since 2012—excluding pandemic-era data—with the Housing Market Index at a shoddy 29 (out of 100).
While sales don’t show any indication of recovering soon, economists look to other factors when diagnosing the overall health of the housing market.
“Despite the difficulty of obtaining a mortgage, the limited number of distressed properties is ensuring steady home prices,” Yun added. “Buyers and sellers may simply be holding back until mortgage rates move favorably.”
“Even as rates strain budgets, the market is becoming more hospitable for those who can afford to participate,” Jones concluded. “Lower prices, a slower pace and more price reductions may help offset some of the impact of higher rates.”
