Housing Market Slumps as Mortgage Rates Hit 7.43%, Fed Considers Hikes

The U.S. housing market showed further weakness in September as pending home sales dropped 7.3% month-over-month and 11.3% year-over-year, hitting a record low since 2001. Housing starts fell 5.2% in the same period, significantly worse than the expected 0.4% decline. Building permits also declined by 0.2%, missing estimates that forecasted a 2% increase. Single-family permits fell 4% from August to 845,000, the lowest level since 2023.

Mortgage rates remain elevated, with 30-year rates around 7.6% at month-end, adding strain to housing affordability amid persistent inflation pressures. The Federal Reserve is expected to continue raising short-term interest rates, which may push mortgage rates even higher and further dampen home buying demand. The housing market’s current downturn compounds the Fed’s challenge in managing inflation while avoiding excessive economic slowdown.

This situation is significant for markets because housing affordability and construction are key drivers of economic growth and consumer spending. Elevated borrowing costs reduce demand for homes and new construction, potentially slowing economic expansion. For investors, housing market weakness amid rising mortgage rates signals risks to sectors linked to real estate and home financing, while underscoring the tricky balance the Federal Reserve faces between inflation control and economic support.