Pending Home Sales Hit Record Low in September as Housing Starts Fall 5.2%

A day after builder confidence fell to its lowest level in more than 14 years, two more reports released Tuesday, Oct. 20, showed the housing slump deepening in September.

The National Association of Realtors said its pending home sales index dropped 7.3% for the month to 66.0. That is the lowest reading since the series began in 2001. It is also down 11.3% from a year earlier. Wall Street had expected a decline of just 0.4%, according to CNBC; Breitbart put the expected decline at 0.5%.

Pending sales count signed contracts on existing homes before closing. They typically lead completed sales by one to two months, so the weakness points to fewer closings this fall.

Every region fell

The drop was broad. Contract signings fell 9.2% in the West, 8.2% in the South, 6.5% in the Midwest and 4.2% in the Northeast. All four regions were also lower than a year ago.

Zillow reported a similar picture, with newly pending sales down 8.5% year over year in September. The company said housing activity normally fades at this point in the year, but high mortgage rates produced a steeper decline this time.

"Market conditions weakened in September due to fast-rising mortgage rates," said Lawrence Yun, the NAR's chief economist. He added that job growth and income gains can support purchases, but affordability is more affected by changes in mortgage rates.

Construction slows

The Commerce Department said housing starts fell 5.2% in September to a seasonally adjusted annual rate of 1.221 million. Economists had forecast a decline of just 0.4%. Starts are 7.4% below their level a year ago.

Single-family starts fell 4.6% to 859,000, the lowest in a year. August was revised down to 900,000 from 918,000. Multifamily starts dropped 6.7% to 362,000, down 24.9% from a year earlier.

Building permits slipped 0.2% to 1.400 million. The Dow Jones consensus had called for a 2% gain. Single-family permits fell 4% from August to 845,000, the lowest since 2023.

Rates and the Fed

Freddie Mac's average 30-year fixed mortgage rate rose to 7.28% at the start of October, then hit 7.40% on Oct. 8, according to the mortgage giant. That is the highest in nearly three years. Mortgage News Daily put the rate at 7.43%, and said it ended September near 7.6%. Five years ago, rates were close to 3%.

Freddie Mac chief economist Sam Khater has urged borrowers to get multiple quotes, saying shopping around can save thousands over the life of a loan.

The Fed raised its benchmark rate by a quarter point last month to a range of 3.75% to 4%, its first increase in over three years. Minutes released Oct. 7 showed officials expect another hike before year-end. CME FedWatch data showed most traders expecting a hold at the October meeting and a move to 4% to 4.25% in December.

Housing weakness might ordinarily argue for easier policy, since lower rates lift demand. Inflation data cut the other way. Last week's Bureau of Labor Statistics report showed wholesale final-demand goods prices rising 2.6%, the fastest pace in a data series going back to December 2009.

Zillow's forecast calls for mortgage rates around 7.1% by the end of this year and 6.5% by the end of 2027.

Washington's role

Chris Rupkey, chief economist at Fwdbonds, put the blame on policy. "The housing market is about to go into a deep sleep unless Washington can do a 180 on its policies and make the cost of a new home more affordable," he wrote. "It is not winter yet but housing is going into a deep freeze."

The Trump administration points to its own steps. On Oct. 7, the Department of Housing and Urban Development announced a Next Generation Manufactured Housing Action Plan, meant to support new designs and construction methods for lower-cost manufactured homes. The plan is early-stage, and no data yet shows its effect on starts or prices.

Prices have held up so far. Redfin put the median sale price at $394,313 for the four weeks ending Sept. 27, up 1.3% from a year earlier. Active listings rose 2.5%, and homes sat a median of 48 days, one day longer than a year ago.

Flat prices alongside record-low contract activity leave sellers and buyers at a standoff. Yun said buyers and sellers may simply be holding back until mortgage rates move favorably, and suggested rates could be topping out, since mortgage rates have already risen much more than the Fed's short-term rate hikes.

The Fed's next move is an open question. Markets expect it to hold at its next meeting, with futures pricing implying a strong chance of a quarter-point hike in December. If that happens, mortgage rates that are already at 7.43% could push even higher, just as pending sales feed through to closings.