U.S. Home Sales Hit Year-End Lows as Contract Cancellations Reach Near-Record Highs

Key points

• Existing-home sales fell 2.2% year-over-year in September to a seasonally adjusted annual rate of 3.99 million, the slowest pace of 2026.
• Contract cancellations reached 14.5% in September, the highest share on record outside the early months of the COVID-19 pandemic.
• New-home sales dropped to a seasonally adjusted annual rate of 584,000 units, the weakest pace since April 2020.
• The 30-year fixed mortgage rate averaged 6.86% in September and has since risen past 7%, significantly impacting buyer affordability.
• Inventory rose to 1.60 million units, representing a 4.8-month supply, giving buyers more negotiating power and contributing to higher cancellation rates.

Background

Mortgage rates have surged to near 7.3%, the highest level since late 2023, driven by inflation concerns and Federal Reserve policy expectations. This spike has significantly reduced homebuyer purchasing power and caused mortgage application volumes to fall sharply. While higher rates are cooling the market, some experts argue this may reduce competition for remaining buyers, though affordability remains constrained by rising property taxes and insurance costs.

How outlets are covering it

NAR Chief Economist Lawrence Yun noted that higher inventory and lengthening days on market give buyers improved negotiating power, suggesting sellers may need to offer price discounts. In contrast, Joel Kan of the Mortgage Bankers Association emphasized that rising mortgage rates had a 'chilling effect' on new-home purchase activity, particularly impacting first-time homebuyers. While NAR data shows a slight month-over-month increase in sales, both organizations agree that year-over-year declines and rising cancellation rates indicate a cooling market.

Why it matters

The combination of rising mortgage rates, high home prices, and increased inventory is creating a challenging environment for both buyers and sellers. Higher cancellation rates and declining sales suggest that the housing market may continue to face headwinds in the coming months, potentially impacting the broader economy and consumer confidence.

What to watch

Analysts expect the housing market to remain under pressure as mortgage rates continue to rise. Sellers may need to adjust their pricing strategies to attract buyers, while buyers may face continued challenges in affording homes. The impact of rising rates on first-time homebuyers and the overall housing market will be closely monitored in the coming months.