Mortgage rates return to 7%, pending home sales in the US fall to nearly a twelve-year low

The US housing market is bearing the brunt of a new round of interest rate shocks.

On October 12, according to seasonally adjusted data from real estate broker Redfin, pending home sales in September fell by 4% month-on-month, marking the largest single-month drop in more than three years and reaching the lowest level since 2014. At the same time, the supply of homes listed for sale rose to its highest level since March 2020.

The driving force behind this shock comes from the rapid increase in mortgage rates. According to Freddie Mac data, the average 30-year fixed mortgage rate rose to 7.4% on October 8, up sharply from 6.66% at the end of August, reaching its highest level in nearly three years and more than one percentage point higher than a year ago.

The surge in interest rates has impacted demand across all major metropolitan areas nationwide. Pending home sales volume in all 50 major metro areas tracked by Redfin fell, marking the first time this has happened since September 2023, when mortgage rates were also at elevated levels.

Redfin Chief Economist Daryl Fairweather stated:

The mood in the real estate industry has shifted dramatically. With interest rates rising this way, fewer people can afford to buy homes, so sales volumes are bound to decline.

The shrinking demand is directly impacting transaction activity.

Redfin data shows that nearly one-fifth of sellers lowered their listing prices in September, buyers’ bargaining power has significantly increased, and the contract cancellation rate has climbed to 14.5%, the highest level on record for the company.

The continued increase in homes for sale has also further changed the supply-demand dynamic. In September, the supply of homes for sale climbed to the highest since March 2020, providing buyers with more choices. However, high financing costs remain a significant barrier to completed transactions.

The impact of this round of interest rate shocks varies by region, showing clear divergence. The Northeast and Midwest of the US remain relatively tight in housing supply, with home prices still somewhat supported, while some markets in the Sun Belt face a double pressure of weakening demand and falling prices.

The West Coast is seeing the most significant impact, as high home prices make local buyers especially sensitive to increased borrowing costs.

Among major metropolitan areas, Seattle saw the largest drop in pending sales, down 24.4% year-on-year, with a slowdown in tech sector hiring intensifying the pressure caused by rising rates. Seattle’s median sales price fell 4.4% year-on-year, also leading the nation in terms of decline.