Mortgage Rates Hit a Three-Year High: What’s Going On With the Housing Market

“Mortgage” is one of the most searched words in America today, and it’s easy to see why. New numbers released on Tuesday show the US housing market just had its weakest month on record, and borrowing costs for homebuyers have climbed to their highest level in nearly three years.

Here’s what’s going on, in plain language.

Pending home sales just hit a record low

The National Association of Realtors (NAR) reported on October 20 that contracts signed to buy previously owned homes fell 7.3% in September. The group’s pending home sales index dropped to 66.0 — the lowest reading since the index started in 2001.

That number caught nearly everyone off guard. Economists polled by Reuters had expected only a 0.5% decline. Compared to the same month last year, pending sales were down 11.3%, and they fell in all four regions of the country.

Why it’s happening: mortgage rates are climbing fast

The main culprit is rising mortgage rates. The average rate on a 30-year fixed mortgage reached 7.40% last week, according to data from Freddie Mac — the highest level in nearly three years.

Higher borrowing costs are being driven by rising Treasury yields, which have been climbing as inflation pressures build. When mortgages get more expensive, fewer people want to buy.

“Market conditions weakened in September due to fast-rising mortgage rates,” said Lawrence Yun, the NAR’s chief economist.

What are pending home sales, exactly?

Pending home sales count signed contracts, not closed deals. A contract typically becomes a completed sale one to two months later. So this index is a forward-looking signal: it tells us where actual home sales are headed next.

That’s why economists watch it closely. A record-low reading in September points to very weak closed sales in October and November.

Which parts of the country were hit hardest?

All four regions saw declines, but the pain wasn’t evenly spread:

• West: down 9.2% (the biggest drop), index at 49.3
• South: down 12.0% from a year ago, index at 79.2
• Midwest: down 8.7% from a year ago, index at 67.3
• Northeast: down 4.2% (the smallest monthly drop), index at 59.0

What do experts say happens next?

Yun offered a slightly hopeful note. He pointed out that mortgage rates have already risen much more than the Federal Reserve’s short-term interest rate increases, and suggested rates “could be topping out.” In other words, the worst of the climb may be behind us.

He also noted that home prices themselves are holding steady, because there are very few distressed or foreclosed properties on the market. His take: many buyers and sellers are simply holding back, waiting for rates to move in a friendlier direction.

The bottom line

The housing market is in a deep freeze. Borrowing costs are the highest they’ve been in years, signed contracts have fallen to a record low, and both buyers and sellers are sitting on the sidelines. Whether things improve will come down to one thing: what mortgage rates do from here.

Quick answers

Why is “mortgage” trending right now?

Because September’s pending home sales numbers, released October 20, showed the weakest housing market on record, and mortgage rates hit a near three-year high.

What is the current mortgage rate?

The 30-year fixed rate averaged 7.40% last week, per Freddie Mac — the highest in nearly three years.

Are home prices dropping too?

Not according to the NAR. The group’s chief economist says prices are holding steady because there are very few distressed properties forcing sellers to cut prices.

When will the housing market recover?

Nobody knows for sure. The NAR’s Lawrence Yun has suggested mortgage rates could be near their peak, but the data so far shows buyers are waiting for rates to come down before jumping back in.