US mortgage rates surge to 7.4%, severely impacting the real estate market; September pending home sales see the largest drop in over three years, falling to the lowest level since 2014

According to Zhitong Finance APP, as US mortgage rates break above 7% again, the US real estate market is suffering a severe impact. The latest data from real estate brokerage Redfin shows that the number of pending home sales in the US in September dropped sharply by 4% from the previous month, marking the largest monthly decline in more than three years, and fell to one of the lowest levels in nearly 12 years. Meanwhile, for-sale housing inventory climbed to its highest level since March 2020, reflecting how high interest rates are persistently weakening homebuying demand and intensifying downward pressure on the US housing market.

Redfin Chief Economist Daryl Fairweather stated, “There has been a significant shift in market sentiment within the real estate industry. When interest rates increase this dramatically, fewer people can afford the cost of buying a home, which means home sales are bound to decline.”

According to Redfin’s seasonally adjusted data, the number of pending existing home sales in the US fell 4% month-on-month in September, marking the largest single-month drop in more than three years. Excluding the special circumstances at the outset of the COVID-19 pandemic in 2020, this indicator has dropped to its lowest level since 2014.

This cooling of the real estate market is mainly driven by a sharp rise in mortgage rates. Freddie Mac data shows that as of October 8, the average rate on the 30-year fixed mortgage in the US 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 the same period last year. The rapid rise in borrowing costs has pushed US homebuying demand down to levels seen just after the end of the 2007-2012 foreclosure crisis, also exposing the market's fragility after years of rising home prices.

Notably, all of the 50 major metropolitan areas in the US tracked by Redfin saw a year-over-year decline in pending home sales in September, the first time this has happened since September 2023—when US mortgage rates were also high.

As worries about further interest rate hikes grow among buyers, more sellers are beginning to cut asking prices. Redfin data shows that nearly one-fifth of US home sellers lowered their asking price in September. Meanwhile, about 14.5% of home purchase contracts ultimately failed to close, the highest proportion ever recorded by the company.

However, the impact of high rates on different US real estate markets varies significantly. In much of the Northeast and Midwest, the inventory of homes for sale remains relatively tight, lending some support to local home prices. In contrast, sellers in some Sun Belt regions are facing the dual pressures of weak demand and declining prices.

The housing market in the US West Coast has been hit particularly hard. With home prices having long been relatively high in this region, buyers are more sensitive to changes in mortgage rates, and rising borrowing costs further erode housing affordability. Seattle reported the largest decline in pending home sales volume among major metro areas in the US. Redfin data shows that in September, Seattle's pending home sales plummeted 24.4% year-on-year. In addition to high mortgage rates, the slowdown in the region's predominantly tech-driven job market has further suppressed housing demand. At the same time, the median sale price of Seattle homes fell 4.4% year-on-year, also the largest drop among major US metro areas.

Several major housing markets in California have also been noticeably affected. The pending home sales volume in Los Angeles, San Diego, and Anaheim all dropped by more than 15% year-on-year. Redfin notes that Southern California real estate ranks among the highest priced in the nation, so local buyers are particularly impacted by rising mortgage rates.

Overall, as the 30-year US mortgage rate climbs to 7.4%, housing affordability has further deteriorated, buyer caution is rising, and transaction activity is clearly slowing. At the same time, an increase in homes for sale, a higher share of price cuts by sellers, and record rates of contract cancellations all indicate that the US housing market is facing greater pressure for adjustment.