US Housing Market Shows Signs of Struggle as Pending Sales Drop 11.3% Year-on-Year
Pending home sales in the US fell 7.3% in September from the prior month and were down 11.3% from the prior year, marking the continued slowing of the housing market, as it becomes less affordable with mortgage rates above 7%, according to the National Association of Realtors.
All regions saw decreases in pending home sales on a monthly and annual basis. The West had the largest annual decrease at 15%, followed by the South with a decrease of 12% (the South is the largest region for existing-home sales). The Northeast and Midwest also saw decreases on a monthly and annual basis. While some markets such as Nashville and Hartford were down less than others, all markets experienced a decrease in pending home sales on a monthly and annual basis.
The increase in mortgage payments to record levels has further exacerbated already sensitive pricing in relation to loan qualification. Despite limited inventory of distressed properties which supports current pricing, transactions by both buyers and sellers continue to experience considerable delay in the current economic environment.
Meanwhile, new construction in the US is not doing well either. Builder confidence plummeted to a 14-year low in October 2026 to 29 in the NAHB/Wells Fargo Housing Market Index. Builders are struggling to manage high cost of labor and materials as well as the high cost of finance to acquire land to develop. Even existing stock of land under development is in short supply due to enforcement of immigration laws.
Some builders are offering incentives such as price cuts. Of builders who sold new homes in the last 12 months, 43% reported they had lowered the price on homes in the past 12 months. These price reductions averaged about 6% off the list price of homes.
Overall the US housing market is under pressure from a variety of factors, including high borrowing costs, lack of affordability and supply side constraints affecting both existing and new construction housing.
What This Means for Your Portfolio:
- Mortgage rates above 7% are a signal for a reevaluation of the home buying process and home financing.
- Similar trends in other markets such as Nashville, San Francisco, etc., that are currently decreasing at a slower rate.
- When it comes to the new home front, pay close attention to the financial health of home builders and how reliant they are on price cuts in order to close sales and deliver homes.
- Keep an eye on the distressed inventory which is currently supporting current prices but could drop sharply if funding conditions continue to worsen.
The Real Question Moving Forward:
The article asks one important question for real estate investors as US mortgage rates remain at very high levels for an extended period of time: Is this a short pause or will it trigger a deeper correction of the current real estate pricing? The answer will largely depend on the value vs. risk for US residential real estate.
