American homebuyers are retreating from the market as mortgage rates climb above 7%, sending pending sales to their lowest level on record while builders cut construction, reduce prices and report their weakest confidence in more than 14 years.
By yourNEWS Media Newsroom
The U.S. housing market suffered a broad setback in September as prospective buyers abandoned purchase plans and residential construction declined sharply, according to federal and industry reports released Tuesday, Oct. 20, revealing the growing consequences of higher mortgage rates and persistent affordability pressures.
Contracts to purchase existing homes plunged 7.3% in September, pushing the National Association of Realtors’ Pending Home Sales Index to 66.0, its lowest reading since the series began in 2001. The decline substantially exceeded economists’ expectations of a 0.5% decrease and left pending transactions 11.3% below their level a year earlier.
The deterioration coincided with a 5.2% decline in new residential construction, reducing housing starts to a seasonally adjusted annual rate of 1.221 million units. The Commerce Department’s figures fell short of economists’ forecasts of approximately 1.3 million and represented a 7.4% decline from September 2025.
Together, the reports show that rising borrowing costs are affecting both sides of the residential real estate market. Prospective purchasers are postponing transactions because of higher monthly payments, while developers are scaling back projects as demand weakens and construction expenses remain elevated.
The National Association of Realtors’ September report identified the rapid increase in mortgage rates as a principal factor behind the collapse in contract activity.
“Market conditions weakened in September due to fast-rising mortgage rates,” said Lawrence Yun, the association’s chief economist. “Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates.”
The average rate on a 30-year fixed mortgage increased from 6.66% in late August to 7.28% at the beginning of October, according to Freddie Mac. The rate reached 7.40% on Oct. 8 and remained at that level during the following week, its highest reading in nearly three years.
That increase has substantially changed the cost of purchasing a home, particularly for first-time buyers and households attempting to move into more expensive properties.
For a purchaser financing a $400,000 home with a $320,000 mortgage, an increase from 6.66% to 7.40% would raise the monthly principal and interest payment by approximately $155, excluding property taxes, homeowners insurance and other expenses.
Over a 30-year mortgage, that difference represents tens of thousands of dollars in additional borrowing costs if the loan remains outstanding for its full term.
The higher payments can also affect mortgage qualification because lenders evaluate debt obligations relative to a borrower’s income. Buyers who qualified for financing when rates were lower may need to consider less expensive properties, make larger down payments or postpone purchasing altogether.
September’s decline in pending sales was nationwide, with every major geographic region recording fewer signed purchase contracts.
The West experienced the largest monthly decrease, with pending sales falling 9.2%. Contract activity dropped 8.2% in the South, 6.5% in the Midwest and 4.2% in the Northeast.
All four regions also reported year-over-year declines, indicating that the downturn was not confined to a single market or temporary regional disruption.
The association’s detailed housing market figures show that the West recorded a 13.2% annual decrease, followed by declines of 12.1% in the South, 10.2% in the Midwest and 9.4% in the Northeast.
Pending sales track contracts signed for existing single-family houses, condominiums and cooperative apartments before transactions are completed. Because closings generally occur one or two months after a contract is signed, the index is considered an early indicator of subsequent home sales.
The September decline therefore suggests that completed transactions could weaken further during October and November, even after existing-home sales posted a modest monthly increase in September.
The latest Reuters analysis of the housing market noted that higher Treasury yields and renewed inflation concerns have contributed to rising mortgage rates, further limiting purchasing power.
Mortgage rates are influenced by conditions in the bond market, particularly yields on longer-term Treasury securities, rather than moving directly with the Federal Reserve’s short-term policy rate.
Expectations concerning inflation, economic growth and future monetary policy can therefore push mortgage costs higher even without an equivalent increase in the federal funds rate.
Recent energy price increases and geopolitical uncertainty have added to inflation concerns, complicating expectations for borrowing costs during the remainder of the year.
Yun suggested that some of the increase in mortgage rates may already have occurred, but cautioned that further developments remain uncertain.
“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.”
The slowdown in homebuying has been accompanied by a significant reduction in residential construction, raising additional concerns about the availability of housing in the coming years.
According to the Commerce Department’s September construction figures, builders began work on new housing units at an annualized rate of 1.221 million, down from the previous month’s pace and below expectations.
Construction of single-family homes fell 4.6% to a seasonally adjusted annual rate of 859,000 units, the lowest reading in a year.
The government also revised August’s single-family construction estimate downward from 918,000 to 900,000 units, showing that the previous month’s increase had been weaker than initially reported.
The revised data indicate that builders were already experiencing reduced demand before September’s additional deterioration.
Construction of multifamily properties, including apartment buildings and condominium developments, declined 6.7% to an annualized rate of 362,000 units.
That represented a 24.9% decrease from the same month in 2025, reflecting substantial weakness in a segment that had previously contributed heavily to new housing supply.
The construction decline has implications extending beyond homebuyers. Residential building activity supports employment and spending across industries including lumber, concrete, roofing, electrical equipment, appliances, transportation and professional services.
When developers delay projects, demand for construction materials and related services can weaken, affecting businesses and workers involved in the broader housing supply chain.
The September housing construction report covered by Reuters also showed that builders were becoming increasingly cautious about committing to future projects.
Total building permits declined 0.2% to an annualized rate of 1.400 million units, but that relatively small overall decrease concealed a much sharper reduction in permits for single-family houses.
Single-family permits fell 4% to 845,000, their lowest level in approximately three and a half years.
Permits for residential buildings containing five or more units increased to 503,000, partially offsetting the decline in single-family construction authorizations.
Building permits are closely watched because they generally precede the start of construction. A sustained decline can indicate that developers expect weaker demand and are reducing the number of projects entering their construction pipelines.
The figures also reveal a potential longer-term challenge for affordability.
Although reduced construction may help builders manage unsold inventory and limit immediate financial exposure, it can also constrain the future supply of homes, particularly in markets already experiencing shortages of entry-level housing.
Developers are confronting these decisions while facing elevated financing expenses, higher prices for building materials and energy, and continued labor availability problems.
Those pressures were reflected in a separate industry survey released Monday, which showed that homebuilder confidence had fallen to its lowest level since June 2012.
The National Association of Home Builders/Wells Fargo Housing Market Index declined three points to 29 in October, extending a prolonged period of pessimism among residential developers.
The index measures builders’ assessments of current single-family home sales, expectations for sales over the next six months and traffic from prospective buyers.
Readings below 50 indicate that more builders consider market conditions poor than good.
All three components weakened in October, signaling deterioration in current demand and expectations for the coming months.
The measure of present sales conditions slipped to 33, while the index tracking expected sales over the next six months declined to 32.
Prospective buyer traffic experienced a particularly sharp decline, falling five points to 18. Excluding the initial disruption caused by the COVID-19 pandemic in April 2020, the reading was the lowest since April 2012.
National Association of Home Builders chief economist Robert Dietz said builders continue to face difficulties attracting buyers despite underlying demand for housing.
“Housing remains squeezed by supply-side constraints and significant affordability challenges,” Dietz said. “Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines.”
The industry’s response has increasingly included discounts and financial incentives intended to reduce buyers’ immediate costs.
The October survey found that 43% of builders reduced home prices, the largest proportion since the association began collecting the measure in 2020.
The average reduction was 6%, unchanged for the seventh consecutive month.
Another 65% of builders reported offering sales incentives, marking the 19th consecutive month in which at least 60% used such measures.
Those incentives can include temporary mortgage-rate reductions, assistance with closing costs and other financial arrangements intended to make new homes more attractive.
For buyers who can qualify for financing, such concessions may create opportunities to negotiate favorable terms, particularly in communities with significant inventories of newly completed homes.
However, the continued use of incentives indicates that builders are having difficulty generating sufficient demand at existing prices and borrowing costs.
The October builder survey findings also documented pressure from higher construction expenses and labor shortages, including disruptions associated with immigration enforcement.
National Association of Home Builders Chairman Bill Owens said those conditions were contributing to reduced buyer activity and higher development costs.
“Mortgage rates have climbed well above 7% in recent weeks, and higher gas prices and inflation have further weakened buyer traffic across much of the country,” Owens said.
“Though builders are also contending with higher costs for construction loans, building materials and diesel, the Trump administration’s efforts to advance regulatory reform are helping to ease some of the cost pressures they face.”
Owens added that more than one-third of surveyed builders reported immigration enforcement activity affecting their local markets during the preceding month. Some builders said the operations had delayed construction and discouraged workers legally authorized to work from reporting to job sites.
The combination of higher costs and weaker sales has created a difficult environment for developers, who must balance competitive pricing against the expenses involved in acquiring land, obtaining financing and completing projects.
The consequences are especially significant for households seeking lower-priced homes.
Elevated mortgage rates increase monthly payments, while high construction costs make it more difficult for builders to profitably develop smaller properties at prices affordable to first-time purchasers.
At the same time, homeowners who previously obtained mortgages at significantly lower rates may be reluctant to sell because purchasing another home would require replacing favorable financing with a substantially more expensive loan.
That reluctance can limit the number of existing properties available for purchase, preventing home prices from falling as sharply as sales activity might otherwise suggest.
Yun noted that the housing market has not experienced a comparable surge in distressed sales, which can place downward pressure on property values during severe housing downturns.
“Despite the difficulty of obtaining a mortgage, the limited number of distressed properties is ensuring steady home prices,” Yun said.
“Buyers and sellers may simply be holding back until mortgage rates move favorably.”
The distinction between declining transactions and falling property values is important. Fewer homes changing hands does not automatically translate into lower prices, particularly when homeowners are financially capable of remaining in their properties rather than selling under pressure.
For prospective buyers, the immediate challenge remains the relationship between home prices, household income and mortgage rates.
For builders, the priority is managing inventories and controlling costs while evaluating whether demand will recover enough to justify additional construction.
The broader economy also faces potential consequences from continued weakness in residential investment, which contributes to economic activity through construction spending, employment, home-related purchases and financial services.
A sustained downturn could reduce demand across those sectors even if home prices remain comparatively stable.
The latest reports provide little evidence of an immediate recovery. Pending transactions have fallen to a record low, new construction is contracting, building permits are weakening and confidence among developers has reached levels not seen in more than a decade.
Some buyers may benefit from greater negotiating leverage as sellers and builders adjust to slower demand, but higher borrowing costs continue to offset many of those potential savings.
Whether conditions improve will depend heavily on mortgage rates, inflation, household income growth and the ability of developers to manage rising expenses.
For now, the September and October figures show a housing market facing simultaneous pressure from declining demand and reduced construction activity, leaving buyers, sellers and builders awaiting more favorable financing conditions before committing to major transactions.
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