- The average 30-year fixed mortgage held at 7.4%, according to Freddie Mac, the highest since November 2023 and up from 6.27% a year ago. Rates have gone eight straight weeks without a decline, the longest run since 2021, climbing 75 basis points over that period against the 45 basis point increase during the 2021 streak.
- Pending home sales, which lead closings, plunged 4% in September from the prior month, the biggest decline in more than three years and the lowest level since 2014 outside the early months of the pandemic, according to Redfin. That confirms the 1.5% rise in September existing sales reflected deals struck before the rate surge.
- Bright MLS chief economist Lisa Sturtevant expects the market to slow considerably this autumn under the combined headwinds of higher mortgage rates, higher inflation and weak consumer confidence, and said existing home sales may fall below 4 million this year for the first time since the 1990s.
- The rate is not historically extreme. At 7.4% it sits above the 7.16% average of the past 45 years and far below the 18%-plus mortgages of 1981, but home prices are simultaneously at historically high levels.
What Happened?
Odeta Kushi, deputy chief economist at First American Financial, said it is the speed of change rather than the absolute level that is most damaging, and that people can afford less home in this environment. She noted income growth has been outpacing house-price growth, but that higher mortgage rates are eating into that positive effect.
Why It Matters?
Kushi’s observation on income and prices is the most useful thing here and it reframes when housing recovers. The affordability problem is usually described as prices being too high relative to incomes, and that relationship has actually been improving, with wages rising faster than house prices. The rate move has simply overwhelmed the repair. That means the underlying adjustment is proceeding and financing costs are the binding constraint, so a decline in rates would restore affordability faster than most people expect, while a sustained period at 7.4% suppresses activity regardless of how much further incomes catch up. The speed argument matters because it distinguishes this from a high-rate market in the ordinary sense. Seventy-five basis points in eight weeks gives buyers and sellers no time to adjust expectations, and it arrives on a price level that was set when financing cost much less. Transactions stop not because the rate is unaffordable in absolute terms but because the two sides of the market are working from different assumptions about what a house is worth. Pending sales are the number to follow rather than closings. Existing sales rose 1.5% in September and that measured contracts signed weeks earlier; pending sales fell 4% to their weakest in over a decade outside the pandemic, which is the better indicator of what the fourth quarter holds. Sturtevant’s projection of full-year sales below 4 million for the first time since the 1990s is consistent with September already running at a 3.99 million annualised pace. For the broader economy this sits alongside mortgage bonds recording their second-worst year in a 50-year index history and a Federal Reserve survey showing the highest share of households with debt payments above 40% of income since 2010.
What Next?
October and November transaction data will show the full effect of eight weeks of rising rates, and pending sales lead by roughly a month. Watch whether rates follow the 10-year Treasury, which has fallen to 5.08% from a 5.36% peak, since mortgage pricing tracks that benchmark with a lag and would be the first relief in two months. Price cuts by sellers are the adjustment mechanism to monitor, as forced selling remains rare while lock-in persists. The Federal Reserve meets October 27 and 28 with markets pricing a 29% chance of a move.
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Source: Bloomberg
