Soaring mortgage rates weigh on homebuying demand as U.S. new home sales fell 0.6% month over month in September, with home prices down 3.9% year over year.

U.S. new home sales edged lower in September as mortgage rates surged. Homebuilders continued to cut prices and offer buying incentives, but these measures were still unable to fully offset the hit to housing demand from rising financing costs, underscoring the persistent pressure facing the U.S. housing market. Data released by the U.S. government on Tuesday showed that sales of newly built single-family homes fell 0.6% month over month in September to a seasonally adjusted annual rate of 676,000 units, still above the 651,000 units expected by economists surveyed by the media. Meanwhile, new home prices remained under pressure. The median new home sales price fell 3.9% year over year in September to US$400,400. This marked the seventh month of year-over-year declines in new home prices in the first nine months of 2026, reflecting that builders are attracting buyers through price cuts. The September new home sales data highlighted the severe challenges facing the U.S. housing market. The data showed that U.S. mortgage rates rose by about 0.5 percentage point in September and touched their highest level in nearly three years in early October. Although rates have edged lower since then, overall borrowing costs remain elevated, continuing to erode the purchasing power of prospective homebuyers. The surge in mortgage rates has not only dampened housing demand but also weighed on homebuilder confidence. Previously released data showed that the U.S. homebuilder confidence index had fallen to its lowest level in 14 years. Nationwide economist Daniel Vielhaber said builders now have to work harder to attract buyers, and elevated mortgage rates may continue to weigh on home sales at least through the end of this year. Vielhaber noted in a report that while price cuts and mortgage rate incentives help sustain home sales, the current market relies more on builder concessions than on strong underlying buyer demand. Against the backdrop of weak demand, builders are still slow to work through new home inventory. According to data released on Tuesday, the inventory of new homes for sale fell 2.3% year over year in September to 476,000 units. At the current sales pace, this represents 8.4 months of supply. This inventory absorption period has fallen to its lowest level this year, but it remains significantly above pre-COVID-19 pandemic levels, indicating that the U.S. new home market still faces considerable supply pressure. By region, sales in the South, the largest U.S. new home sales market, fell 6.6% in September to an annualized rate of 413,000 units. New home sales in the Midwest also declined, offsetting the boost from sales growth in the West and Northeast. It is worth noting that first-time homebuyers and entry-level buyers are particularly sensitive to changes in financing costs, so homebuilders targeting this group face greater challenges. Bloomberg Intelligence analyst Drew Reading noted in a report released last week that builders primarily serving entry-level buyers, such as D.R. Horton, Inc. (DHI.US) and Meritage Homes (MTH.US), are more vulnerable to rising mortgage rates. To address declining housing affordability, builders are taking various measures to sustain sales, including launching smaller homes with lower total prices and reducing buyers' monthly payment burdens through mortgage rate subsidies. However, while these incentives can stimulate transactions to some extent, they also reflect a lack of sufficiently strong underlying demand in the housing market. Analysts noted that compared with existing home sales data, new home sales are generally regarded as a more timely indicator of changes in the housing market, because new home sales are typically counted when a sales contract is signed, while existing home sales are usually recorded only after the transaction closes. However, because new home sales data are highly volatile on a monthly basis, single-month changes still need to be interpreted with caution. The U.S. government noted that the actual change in September new home sales could range from a 14.4% decline to a 13.2% increase, so although the published data showed a 0.6% month-over-month decline, it is still difficult to determine whether new home sales have truly declined.