U.S. mortgage rates surge to 7.4%, dealing a heavy blow to the housing market. September pending home sales post the largest drop in more than three years, falling to the lowest level since 2014.

As U.S. mortgage rates once again climb above 7%, the U.S. housing market is suffering a severe blow. The latest data from real estate brokerage Redfin shows that in September, U.S. pending home sales plunged 4% month over month, the largest drop in more than three years, and fell to one of the lowest levels in nearly 12 years. At the same time, the supply of homes for sale climbed to its highest level since March 2020, reflecting how high rates are continuing to weaken homebuying demand and intensifying downward pressure on the U.S. housing market. Redfin Chief Economist Daryl Fairweather said: "Market sentiment in the real estate industry has changed significantly. When rates rise this sharply, fewer people can afford to buy a home, which means home sales are bound to fall." According to seasonally adjusted Redfin data, U.S. pending home sales fell 4% month over month in September, the largest single-month decline in more than three years. Excluding the special period in the early days of the COVID-19 pandemic in 2020, the indicator has fallen to its lowest level since 2014. The cooling in the housing market is mainly driven by the sharp climb in mortgage rates. Freddie Mac data shows that as of October 8, the average rate on the U.S. 30-year fixed mortgage had risen to 7.4%, up from 6.66% at the end of August, the highest level in nearly three years, and more than 1 percentage point higher than a year earlier. The rapid rise in borrowing costs has pushed U.S. homebuying demand down to levels seen shortly after the 2007-2012 foreclosure crisis ended, and has also exposed the fragility of the housing market after years of sustained home price gains. It is worth noting that in September, pending home sales fell year over year in all 50 major U.S. metropolitan areas tracked by Redfin, the first time this has happened since September 2023. At that time, U.S. mortgage rates were also elevated. As buyers grow more worried about further rate increases, more and more sellers are cutting their listing prices. Redfin data shows that in September, nearly one in five U.S. home sellers lowered their asking price. At the same time, about 14.5% of purchase contracts ultimately fell through, the highest share on the company's record. However, the impact of high rates on U.S. regional housing markets varies markedly. In much of the Northeast and Midwest, inventory of homes for sale remains relatively tight, providing some support for local home prices. By contrast, sellers in parts of the Sun Belt are facing the dual pressure of weak demand and falling home prices. The impact on the U.S. West Coast housing market is especially pronounced. Because local home prices have long been at high levels, buyers are more sensitive to changes in mortgage rates, and rising borrowing costs have further eroded housing affordability. Among them, Seattle became the market with the largest decline in pending home sales among major U.S. metropolitan areas. Redfin data shows that in September, Seattle pending home sales plunged 24.4% year over year. In addition to elevated mortgage rates, slower growth in the local job market, which is dominated by the tech industry, has further dampened housing demand. At the same time, the median home sale price in Seattle fell 4.4% year over year, also the largest decline among major U.S. metropolitan areas. Several major California housing markets have also been hit hard. Pending home sales in Los Angeles, San Diego and Anaheim all fell by more than 15% year over year. Redfin noted that Southern California home prices are among the highest in the nation, so local buyers are especially hard hit by rising mortgage rates. Overall, as the U.S. 30-year mortgage rate rises to 7.4%, housing affordability has worsened further, buyer caution has increased, and home transaction activity has slowed markedly. At the same time, rising inventory, a higher share of sellers cutting prices and a record contract cancellation rate all indicate that the U.S. housing market is facing greater adjustment pressure.