US mortgage interest rates soared to 7.4%, and hit the property market, and the number of contracts signed for sale of existing homes in September hit the biggest drop in more than three years and fell to the lowest level since 2014

The Zhitong Finance App learned that as US mortgage interest rates break through 7% again, the US real estate market is being severely impacted. According to the latest data from the real estate brokerage firm Redfin, the number of contracts for sale of existing homes in the US plummeted 4% month-on-month in September, the biggest drop in more than three years and one of the lowest levels in nearly 12 years. Meanwhile, the supply of homes for sale climbed to its highest level since March 2020, reflecting that high interest rates are continuing to weaken demand for home purchases and increase downward pressure on the US real estate market.

Redfin Chief Economist Daryl Fairweather said, “Market sentiment in the real estate industry has changed significantly. When interest rates rise so drastically, fewer people can afford to buy a home, which means that home sales will inevitably fall.”

According to Redfin's seasonally adjusted data, contracts for sale of existing homes in the US fell 4% month-on-month in September, the biggest monthly decline in more than three years. With the exception of the special period at the beginning of the COVID-19 pandemic in 2020, the indicator has fallen to its lowest level since 2014.

The current cooling of the real estate market was mainly affected by a sharp rise in mortgage interest rates. According to Freddie Mac data, as of October 8, the average interest rate for 30-year fixed mortgages in the US had risen to 7.4%, up from 6.66% at the end of August, the highest level in nearly three years, and more than 1 percentage point higher than the same period last year. The rapid rise in borrowing costs caused demand for home buyers in the US to fall to a level not long after the end of the 2007-2012 home foreclosure crisis, and also revealed the fragility of the real estate market after housing prices continued to rise in recent years.

Notably, the number of existing home contracts for sale in all 50 major US metropolitan areas tracked by Redfin declined year-on-year in September. This is the first time this has happened since September 2023. At the time, US mortgage interest rates were also high.

As buyers' concerns about a further rise in interest rates intensified, more and more sellers began to lower listing prices. According to Redfin data, nearly one-fifth of US home sellers lowered their asking prices in September. Meanwhile, approximately 14.5% of home purchase contracts ultimately failed to complete transactions, the highest percentage the company has recorded.

However, there are clear differences in the impact of high interest rates on the real estate market in different regions of the US. In most of the northeastern and midwestern regions of the US, inventory of homes for sale is still relatively tight, providing some support for local housing prices. In contrast, sellers in parts of the Sunshine Zone are facing the double pressure of weak demand and falling housing prices.

The impact on the real estate market on the West Coast of the United States was particularly evident. As local housing prices have been at a high level for a long time, buyers are more sensitive to changes in mortgage interest rates, and rising borrowing costs have further weakened housing affordability. Among them, Seattle became the market with the biggest drop in the number of contracts for sale of existing homes in major metropolitan areas of the United States. According to Redfin data, the number of contracts signed for existing homes for sale in Seattle plummeted 24.4% year over year in September. In addition to high mortgage interest rates, the slow growth of the local job market, mainly in the technology industry, has further curtailed demand for housing. Meanwhile, the median house sales price in Seattle fell 4.4% year over year, also the biggest drop among major US metropolitan areas.

Several major California real estate markets have also experienced significant shocks. The number of existing home sales contracts in Los Angeles, San Diego, and Anaheim all dropped by more than 15% year over year. According to Redfin, real estate prices in Southern California are among the highest in the US, so local buyers are particularly affected by rising mortgage interest rates.

Overall, as interest rates on 30-year mortgages in the US rose to 7.4%, housing affordability deteriorated further, buyers' wait-and-see sentiments heated up, and housing transaction activity slowed markedly. At the same time, the increase in the number of properties for sale, the increase in the percentage of sellers' price cuts, and a record rate of cancellation of home purchase contracts all indicate that the US real estate market is facing greater pressure to adjust.