US housing market continues to cool! September pending home sales index plunges 7.3% month-over-month; housing starts and building permits both decline.

As US mortgage rates climbed rapidly in September, the housing market came under renewed and pronounced strain. The latest data show that the US pending home sales index fell sharply by 7.3% month-over-month in September and was down 11.3% year-over-year. At the same time, single-family housing starts and building permits both declined, reflecting that the high-rate environment is dampening both housing demand and construction activity. Data released by the National Association of Realtors (NAR) show that the pending home sales index fell 7.3% month-over-month in September and was down 11.3% year-over-year. The gauge measures existing-home sales for which purchase contracts have been signed but the transactions have not yet closed, and is regarded as an important leading indicator of the future direction of existing-home sales. Housing demand weakened markedly in September, mainly under the impact of rapidly rising mortgage rates. According to Mortgage News Daily, the average rate on a 30-year fixed-rate mortgage in the US was about 6.8% in early September but had climbed to 7.6% by the end of the month, an increase of about 80 basis points in just one month, significantly raising buyers' financing costs. NAR Chief Economist Lawrence Yun said that although employment growth and rising incomes can support home purchases, changes in mortgage rates have a more direct effect on housing affordability by comparison. Higher borrowing costs mean that even without a marked rise in home prices, buyers may face a substantial increase in their monthly mortgage payments. This has led some potential buyers to postpone purchase plans, further weakening demand in an already soft housing market. By region, the pending home sales index declined in all major US regions in September, with the South and West particularly hard hit. Data show that pending home sales fell 8.2% month-over-month in the South and 9.2% in the West. The South is typically the most active region for US home transactions, while the West has the highest home prices. As mortgage rates climbed, affordability in these two markets deteriorated further, causing a marked slowdown in transaction activity. The effects of weak housing demand are also spreading to the construction sector. Data from the US Census Bureau show that single-family housing starts fell 4.56% month-over-month in September to a seasonally adjusted annual rate of 859,000, the lowest level since September 2025, a decline clearly larger than analysts had expected. Meanwhile, building permits, an important indicator of future homebuilding activity, fell 4% month-over-month in September, also reflecting builders' cautious stance on future market demand. Ben Ayers, senior economist at Nationwide Financial, said in a note to investors that US residential construction activity is expected to remain sluggish through 2027. He noted that many builders are still working to absorb housing projects already completed or under development, and are widely using price cuts and buyer incentives to stimulate sales, but these strategies are eroding corporate profit margins. Ayers believes that as the housing market gradually adapts to a higher-rate environment, housing starts may remain at a low level for most of the coming year, especially single-family home construction. That also means reduced residential construction investment could act as a drag on overall US economic growth. At the same time, US homebuilder confidence has deteriorated further. Data released Tuesday by the National Association of Home Builders (NAHB) show that the builder confidence index fell in October to its lowest level in 14 years. The survey showed declines in the gauges measuring current sales conditions, future sales expectations and traffic of prospective buyers. The buyer traffic index fell to the lowest level for the period covered by the survey, underscoring the severity of weak market demand. NAHB Chief Economist Robert Dietz said the US housing market remains squeezed by both supply-side constraints and severe housing affordability problems. He noted that although housing demand still exists, higher mortgage rates, persistently high construction costs and weakening consumer confidence are prompting more and more potential buyers to stay on the sidelines. For builders, the challenges in the current market stem not only from insufficient housing demand but also from persistently high labor and building material costs. With sales slowing, companies need to cut prices to attract customers while finding it difficult to significantly reduce construction costs, leaving profit margins under sustained pressure.