U.S. Pending Home Sales Decline Amid Rising Mortgage Rates, Economic Uncertainty

Market Overview: Pending Sales Retreat as Rates Tick Up

U.S. pending home sales experienced a decline of approximately 1% year over year during the four weeks ending September 28, according to a report from real estate brokerage Redfin. This marks the largest contraction in nearly five months, primarily influenced by a reversal in mortgage rate trends and prevailing economic uncertainties.

The slowdown in homebuyer activity was particularly notable in several major metropolitan areas. Houston saw pending sales fall by 15.4% year over year, while Denver recorded a 12.3% decrease, and Las Vegas experienced an 11.2% reduction. Overall, pending sales decreased in 30 of the 50 largest U.S. metropolitan areas.

Factors Influencing Buyer Hesitation

Several interconnected factors are contributing to the current market dynamics. The median home-sale price increased by 2.5% from the prior year, reaching $390,845, representing the largest six-month increase. Concurrently, the weekly average mortgage rate advanced to 6.3% from 6.26%, ending a nine-week period of declines. This uptick in rates exacerbated rising sale prices, pushing the median monthly housing payment to $2,590, an increase of approximately $40 from early September's nine-month low.

While total housing inventory has risen by 8.4% year over year, this represents the smallest increase since early 2024, as the growth in new listings has decelerated. Beyond pricing and rates, broader economic uncertainties, including concerns about potential layoffs and the recent federal government shutdown, have further dampened consumer confidence and buyer enthusiasm.

Sectoral Impact and Bright Spots

The prevailing market conditions have created headwinds for various segments of the Real Estate Sector. Mortgage lenders, such as Rocket Companies (RKT), are directly impacted by reduced lending activity and fewer loan originations. Despite these challenges, Rocket Companies has demonstrated resilience with a 6.75% revenue growth over the last twelve months. However, InvestingPro data indicates that the company is currently trading above its Fair Value, reflecting the challenging market environment. Real estate brokerages like Zillow Group (ZG) and Redfin (RDFN) also face susceptibility to lower transaction volumes, which can affect commission revenues and advertising income.

Conversely, the market exhibits some areas of resilience. Sales of starter homes, categorized as those priced in the 5th-35th percentile, increased by 4% in August, even as demand for higher-priced homes softened. This trend suggests increased buyer bargaining power, with an estimated half a million more sellers than buyers in the current market. Furthermore, the ADP private-sector job report for September indicated a relatively stable labor market, providing a measure of economic clarity amidst the federal government shutdown's impact on official data.

"The housing market's current trajectory creates a distinct landscape of winners and losers among public companies, primarily based on their direct or indirect exposure to transaction volumes and new construction."

Major homebuilders, including D.R. Horton (DHI), Lennar (LEN), and PulteGroup (PHM), are likely to experience reduced demand for new homes, slower construction starts, and pressure to offer incentives. Building material suppliers like Builders FirstSource (BLDR), Home Depot (HD), and Lowe's (LOW) are also vulnerable to decreased demand as new construction moderates.

Outlook and Forward Considerations

The housing market is expected to undergo a period of gradual rebalancing and subdued price appreciation. A rapid market "crash" is considered unlikely due to sustained low inventory levels relative to pre-pandemic figures, strong homeowner equity, and robust lending standards. Home price growth is projected to remain modest, likely within the 1% to 5% annual range nationally, a significant moderation from recent years. Existing home sales are anticipated to remain sluggish, potentially marking the slowest year since 1995.

Fannie Mae forecasts mortgage rates to average around 6.4% by the end of 2025, potentially easing to 5.9% by the end of 2026. Their economic and housing outlook projects new and existing home sales to total 4.72 million in 2025 and 5.16 million in 2026. The National Association of Realtors (NAR) predicts an 11-13% increase in existing-home sales in 2026, contingent on mortgage rates declining below 6%.

Longer-term, affordability will remain a critical challenge unless wage growth significantly outpaces increases in home prices. Key factors to monitor in the coming months include the trajectory of mortgage rates, broader economic indicators, and the evolution of housing inventory levels. The market is anticipated to continue a slow path toward lower rates and a gradual rebound in sales activity as pent-up demand materializes.