Economy · · 2 min read
Editor: Bohdan S.
US pending home sales drop 7.3% to a record low as mortgage rates climb
Signed contracts on existing US homes fell to the lowest level since records began in 2001, a sign that closed sales could weaken further as borrowing costs bite.
The short answer
The National Association of Realtors' pending home sales index fell 7.3% in September to 66.0, its lowest reading since the series began in 2001, as the Financial Times (FT) and others reported. Economists had expected a small dip. With 30-year mortgage rates above 7%, fewer buyers are signing contracts, pointing to weaker sales ahead.
What happened
Contract signings on previously owned US homes slumped in September, the Financial Times (FT) reported, citing the surge in borrowing costs. Figures from the National Association of Realtors (NAR) show its pending home sales index dropped 7.3% from August to 66.0, the weakest level since the data starts in 2001, and was 11.3% lower than a year earlier. Economists surveyed by Reuters had pencilled in a decline of only about 0.5%. Every region fell, led by the West, down 9.2% on the month, and the South, down 8.2%. Commerce Department data released the same day showed housing starts falling 5.2%.
What it means
Pending sales measure deals that have been signed but not yet closed, and those contracts usually turn into completed sales within one or two months. That makes this index an early warning light. A record low in September suggests closed existing-home sales could stay weak through the autumn and into the winter.
The trigger is borrowing costs. Freddie Mac data cited by Reuters put the average 30-year fixed mortgage rate at 7.40% last week, the highest in nearly three years, and Mortgage News Daily had rates near 7.6% at the end of September, according to CNBC. Those costs are tracking Treasury yields, which have risen as the war with Iran pushes up energy prices and inflation. NAR's chief economist Lawrence Yun said affordability is more sensitive to mortgage rates than to job or income gains.
The housing slump also complicates the Federal Reserve's job. Traders now see a good chance the Fed lifts rates by a quarter point in December, with a second rise in March 2027, according to CNBC, citing CME Group's FedWatch tool. Normally a weak housing market might argue for easier policy, but inflation remains the bigger worry for the central bank, and further hikes could keep mortgage rates elevated.
There are a few cushions. Yun noted that mortgage rates have already climbed far more than the Fed's own rate rises, so they could be close to a peak, and that a shortage of distressed properties is keeping home prices steady. Goldman Sachs economist Ronnie Walker, quoted by CNBC, expects the so-called lock-in effect, where owners with cheap old mortgages stay put, to keep turnover low into 2027.
The bull case
Yun argues mortgage rates may be topping out, and if inflation pressure from energy eases, buyers who are waiting on the sidelines could return quickly. Few homeowners are being forced to sell, which supports prices and limits the risk of a disorderly slide. A quieter market also hands buyers more bargaining power, which could help revive activity once rates stabilize.
The bear case
If the Fed raises rates again as futures markets imply, mortgage costs could climb further and deepen the freeze. Weaker contracts now point to fewer closings later, hurting homebuilders, brokers, mortgage lenders and furniture or home-improvement retailers. With builder sentiment at a 14-year low and starts falling, residential investment could become a drag on economic growth well into next year.
Why it matters
For investors
Homebuilder and mortgage-related stocks are most exposed, while the data adds to arguments over how far the Fed can push rates without tipping housing into a deeper slump.
The wider context
For households, high mortgage rates mean buying or moving is costly, but a slower market can give buyers more room to negotiate on price and terms.
Market impact
| Asset (ticker) | Possible move | Timeframe | Why |
|---|---|---|---|
| iShares U.S. Home Construction ETF (ITB) | ↓ Down | Short term | Fewer signed contracts and falling starts point to weaker demand for builders. |
| Rocket Companies (RKT) | ↓ Down | Short term | Lower home sales volumes reduce mortgage origination and brokerage activity. |
| US 10-year Treasury yield | ↔ Unclear | Short term | Housing weakness argues for lower yields, but inflation and Fed hike bets push the other way. |
The FinPrism newsroom's view of how these figures could move, as of . It is general news commentary, not a recommendation to buy, sell or hold anything.
Frequently asked questions
What are pending home sales?
Pending home sales count existing homes where a purchase contract has been signed but the deal has not yet closed. Because most of these contracts complete within one or two months, the National Association of Realtors' index is watched as an early signal of where actual home sales are heading.
Why did pending home sales hit a record low?
Mortgage rates jumped in September, with the 30-year fixed rate rising above 7% and averaging 7.40% last week, according to Freddie Mac data. Higher monthly payments priced many buyers out, and NAR's chief economist said affordability is driven more by mortgage rates than by jobs or income growth.
Will home prices fall because of the housing slump?
Not necessarily. NAR says the small number of distressed properties is keeping prices steady, since few owners are forced to sell. Many homeowners also hold cheap older mortgages and are reluctant to move. Slower sales can still give buyers more room to negotiate on price and terms.
Sources: National Association of Realtors, Financial Times, Reuters via Yahoo Finance, CNBC, HousingWire
How this was made: written with AI assistance from the sources listed above, following our editorial standards.
