Pending Home Sales Hit Lowest Level Since 2001 as Rates Bite

Pending home sales fell to their lowest nationwide reading since the series launched in 2001, according to data released Tuesday by the National Association of Realtors. Signed contracts on existing homes dropped 7.3% in September from August and 11.3% from a year earlier.

That's a two-decade low in the single most forward-looking gauge of housing demand. Pending sales track contracts, not closings, so they tell you where the market is heading next — and right now, it's heading down.

The culprit, according to Lawrence Yun, chief economist at the Washington, D.C.-based trade group, is "fast-rising" mortgage rates. The average 30-year fixed-rate mortgage has been climbing since late February, but September's move was especially sharp: it surged from roughly 6.9% to as high as 7.6%, per Mortgage News Daily data.

Yun kept his explanation blunt. "Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates," he said in a statement.

Where is the weakness concentrated?

The declines were steepest in the South and West — the regions that carried the pandemic-era boom. But no market proved immune. Even strongholds like Nashville and San Francisco saw contract activity fall, per reporting by Mortgage Professional America.

For context: a 7.6% rate on a 30-year loan adds hundreds of dollars to a monthly payment compared with the sub-7% rates available just weeks earlier. That's the arithmetic freezing buyers in place, regardless of how their paychecks look.

What does this change for buyers?

Possibly less than you'd think, at least on rates. There's a case that mortgage rates are topping out, because they've already risen more than the Federal Reserve's short-term rate hikes would justify. But Yun flagged a second risk: "Increasing energy prices and the resulting inflationary pressure are highly uncertain."

So even if financing costs plateau, household budgets may not get relief. Affordability, not inventory or confidence alone, remains the binding constraint.

Builders are flinching too

The weakness isn't confined to the resale market. Housing starts — new residential construction — fell 5.2% in September from August and 7.4% year over year, according to a U.S. Census Bureau report released Tuesday.

Sentiment among homebuilders has soured alongside it. A monthly gauge from the National Association of Home Builders, released Monday, fell to its lowest level in 14 years — meaning builders haven't felt this gloomy since 2011.

Bill Owens, chairman of the Washington, D.C.-based group, pointed to the same pressures hitting buyers: rising mortgage rates, higher gas prices and broader inflation. Builders face additional headwinds, including higher costs for construction loans and building materials, plus immigration enforcement activity in their markets that could cause construction delays.

Robert Dietz, chief economist at the NAHB, summed up the standoff: "Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines."

The so-what

Both sides of the market are contracting at once — demand through pending sales, supply through starts and builder sentiment. Falling construction today tightens inventory tomorrow, which supports prices even as sales volumes sag. That's a recipe for a frozen, low-turnover market rather than a crash, and it won't thaw until rates or affordability move meaningfully.