US Housing Market Contracts as Borrowing Costs Rise

Rapidly escalating borrowing costs pushed the U.S. housing market into a severe contraction during September, as pending home sales and construction metrics fell sharply across the country according to data released by the National Association of Realtors.

The Bottom Line

• Pending home sales dropped 7.3% from August and fell 11.3% compared to the same period last year.
• Single-family housing starts fell 4.56% to an annualized rate of 859,000, hitting the lowest level since September 2025.
• Average rates on the 30-year fixed mortgage started September near 6.8% and climbed to 7.6% by month’s end.

Contract Signatures Drop Across Regional Markets

The National Association of Realtors reported that pending home sales—a forward-looking indicator measuring signed contracts on existing single-family homes, townhomes, and condominiums—decreased significantly as affordability constraints tightened in September. The monthly decline reached 7.3%, bringing the year-over-year contraction to 11.3%.

Lawrence Yun, chief economist at the National Association of Realtors, noted that borrowing costs dictate purchasing power far more than baseline job growth and income gains. The South and the West experienced the steepest month-to-month contractions, registering drops of 8.2% and 9.2% respectively. The South typically functions as the nation’s most active residential market, while the West maintains the highest median home prices.

Housing Metric	September Data	Change from Previous Period
Pending Home Sales Index	National Total	-7.3% MoM / -11.3% YoY
Single-Family Housing Starts	859,000 annualized	-4.56% MoM
Building Permits	Future Construction	-4.0% MoM

Construction Activity and Builder Sentiment Deteriorate

Residential construction slowed concurrently as developers faced mounting inventory pressures and declining buyer participation. According to the U.S. Census Bureau, single-family housing starts declined 4.56% to an annualized rate of 859,000, marking the lowest level recorded since September 2025. Building permits, which signal future building pipelines, dropped 4.0% over the course of the month.

Ben Ayers, senior economist at Nationwide Financial, stated that home construction activity will likely remain subdued well into 2027. Builders continue deploying price reductions and financial incentives to clear existing inventory, which erodes profit margins across the sector. Concurrently, an October gauge of homebuilder sentiment compiled by the National Association of Home Builders reached its lowest mark in 14 years. Robert Dietz, chief economist at the association, pointed to persistent supply constraints, elevated construction costs, and depressed consumer confidence as primary drivers keeping potential buyers away from the market.

Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.

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