By Bill Pan

A new report adds to the evidence that rising borrowing costs are weighing heavily on housing demand, despite growing housing inventory and an increasing number of sellers cutting their asking prices.

The National Association of Realtors said on Oct. 20 that its Pending Home Sales Index fell 7.3 percent from August and 11.3 percent from last year to 66. A reading of 100 represents the average level of contract activity in 2001, indicating current contract activity is roughly one-third below that benchmark.

Pending home sales, which measure purchase contracts that have been signed but have not yet closed, are considered a leading indicator of completed home sales because most transactions close within one or two months.

The West recorded the largest monthly decline, with pending sales falling 9.2 percent from August and 15 percent from a year earlier. The South followed with an 8.2 percent monthly and a 12 percent annual decline.

In the Midwest, pending sales fell 6.5 percent from August and 8.7 percent from a year earlier, while the Northeast posted declines of 4.2 percent from August and 9.4 percent from a year earlier.

“Market conditions weakened in September due to fast-rising mortgage rates,” National Association of Realtors Chief Economist Lawrence Yun said. “Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates.”

The average rate on a 30-year fixed mortgage increased from 6.71 percent on Sept. 3 to 7.03 percent by Sept. 24 and 7.28 percent on Oct. 1, according to Freddie Mac.

Rates have since risen further, reaching 7.40 percent as of Oct. 15, their highest level in nearly three years.

Yun said mortgage rates may be approaching a peak because they have already risen considerably more than the Federal Reserve’s increases in short-term interest rates. But he cautioned that higher energy prices and accompanying inflation pressures remain uncertain.

“Buyers and sellers may simply be holding back until mortgage rates move favorably,” Yun said.

The findings echo an earlier report from real estate brokerage Redfin, which found that pending home sales declined 4 percent from August on a seasonally adjusted basis, the steepest monthly drop in more than three years.

According to Redfin’s Oct. 12 report, the number of homes going under contract fell to its lowest level since spring 2014, excluding April 2020, when the onset of the COVID-19 pandemic temporarily froze much of the housing market.

“It’s not surprising that when rates climb above 7 percent, fewer people buy homes because fewer people can afford them,” said Chen Zhao, Redfin’s head of economic research.

The slowdown in demand comes as buyers gain more negotiating power in a market where inventory is increasing, and sellers face greater pressure to offer discounts.

Nearly 20 percent of sellers with active listings reduced their asking prices in September, according to Redfin. About 60.5 percent of homes sold during the month went for less than their original listing prices.

A separate National Association of Realtors report on existing-home sales showed that housing inventory reached 1.60 million units at the end of September, up 1.9 percent from August and 4.6 percent from a year earlier.

At the current sales pace, that represented a 4.8-month supply, unchanged from August but up from 4.5 months in September 2025.