September mortgage rate surge drives sharp decline in U.S. housing activity
Higher mortgage rates in September led to a 7.3% drop in pending home sales, a decline in new construction permits and the lowest homebuilder sentiment in 14 years.
Mortgage rates rose sharply in September, pushing the average 30-year fixed rate from about 6.8% at the start of the month to 7.6% by month-end, according to Mortgage News Daily. The increase coincided with a 7.3% month-over-month decline in pending home sales, the metric that tracks signed contracts for existing homes, and an 11.3% drop compared with a year earlier, data from the National Association of Realtors showed.
Lawrence Yun, chief economist for the NAR, said that while job growth and income gains can support purchases, "housing affordability is more affected by changes in mortgage rates."
Sales fell across all regions, with the South and West seeing the largest declines at 8.2% and 9.2% respectively. New home construction also weakened; single-family housing starts fell 4.6% to an annualized 859,000, the lowest level since September 2025, and building permits dropped 4%.
Ben Ayers, senior economist at Nationwide Financial, warned that "home construction activity is likely to remain low into 2027" as builders contend with price cuts and incentives that pressure profit margins.
The National Association of Home Builders reported that its October homebuilder sentiment index fell to the lowest point in 14 years, reflecting declines in current sales, future sales expectations and buyer traffic.
Robert Dietz, chief economist for the NAHB, noted that "housing remains squeezed by supply-side constraints and significant affordability challenges," adding that higher rates, elevated construction costs and weaker consumer confidence are keeping many buyers on the sidelines.