With US mortgage rates climbing rapidly in September, the housing market has once again been hit hard. The latest data shows that the US pending home sales index fell sharply by 7.3% month-over-month in September and dropped 11.3% year-over-year, while single-family housing starts and building permits also declined, reflecting how the high-rate environment is simultaneously dampening housing demand and construction activity.
Data released by the National Association of Realtors (NAR) shows that the September pending home sales index fell 7.3% month-over-month, with a year-over-year decline of 11.3%. This metric tracks existing-home sales that have signed purchase contracts but not yet closed, and is viewed as an important leading indicator of future existing-home sales trends. Housing demand weakened notably in September, primarily due to the rapid rise in mortgage rates. According to Mortgage News Daily, the average rate on a 30-year fixed mortgage in the US was about 6.8% in early September but climbed to 7.6% by the end of the month, an increase of roughly 80 basis points in just one month, significantly raising financing costs for homebuyers.
NAR Chief Economist Lawrence Yun said that although job growth and rising incomes can support home purchases, changes in mortgage rates have a more direct impact on housing affordability. Higher borrowing costs mean that even if home prices do not rise significantly, the monthly mortgage payment a buyer must bear could increase substantially. This has led some potential buyers to postpone their purchase plans, further weakening demand in an already soft housing market. By region, the pending home sales index declined in all major US regions in September, with the South and West particularly hard hit. Data shows pending home sales in the South fell 8.2% month-over-month, while the West saw a decline of 9.2%. The South is typically the most active region for US home transactions, while the West is the region with the highest home prices. As mortgage rates climbed, affordability in these two markets deteriorated further, leading to a clear slowdown in transaction activity.
The impact of weak housing demand is also spreading to the construction industry. Data from the US Census Bureau shows that single-family housing starts fell 4.56% month-over-month in September to a seasonally adjusted annual rate of 859,000 units, the lowest level since September 2025 and a decline notably larger than analysts had expected. Meanwhile, building permits, an important indicator of future housing construction activity, fell 4% month-over-month in September, also reflecting builders' cautious stance on future market demand.
In a note to investors, Nationwide Financial senior economist Ben Ayers said US residential construction activity is expected to remain sluggish until 2027. He noted that many builders are still working to absorb housing projects already completed or under development, and are widely adopting measures such as price cuts and buyer incentives to stimulate sales, but these strategies are eroding corporate profit margins. Ayers believes that as the housing market gradually adapts to a higher-rate environment, housing starts may remain at low levels for most of the coming year, especially single-family construction activity. This also means that reduced residential construction investment could drag somewhat on overall US economic growth.
At the same time, US homebuilder confidence has deteriorated further. Data released Tuesday by the National Association of Home Builders (NAHB) shows that the builder confidence index fell in October to its lowest level in 14 years. The survey showed declines in the indicators measuring current sales conditions, future sales expectations and prospective buyer traffic. Among them, the buyer traffic index fell to its lowest level for the period described in this survey, highlighting the severity of weak market demand. NAHB Chief Economist Robert Dietz said the US housing market remains squeezed by both supply-side constraints and severe housing affordability problems. He noted that although housing demand still exists, higher mortgage rates, persistently high construction costs and weakening consumer confidence are prompting more and more potential buyers to stay on the sidelines. For builders, the challenges in the current market not only stem from insufficient homebuying demand, but also from persistently high labor and building material costs. With sales slowing, companies need to attract customers through price cuts on one hand, while on the other hand finding it difficult to significantly reduce construction costs, causing profit margins to remain under continuous pressure.
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