US home prices cool as mortgage rates stay above 7%

The pressure is showing up first in overheated pandemic-era markets. More than 20% of listings had price cuts in September, with the deepest adjustments in places such as Florida and Texas. In Austin, average price per square foot fell more than 8% from a year earlier, a sign that buyers are regaining leverage after years of bidding wars.

National prices have not collapsed, but they are losing momentum. The National Association of Realtors said the median existing-home price in September was still up 1.3% from a year earlier at $417,500, the 39th straight annual gain. Sales, however, fell 2.2%, while starts, pending sales and builder confidence also weakened, underscoring how affordability is choking demand even before outright price declines become broad-based.

The freeze is being reinforced by a supply trap. Many homeowners who locked in mortgages below 3% during the pandemic are unwilling to sell and swap into today’s much more expensive financing, keeping inventory tight and preventing a full reset. But as demand weakens, that “lock-in” effect is beginning to give way to price concessions where supply has piled up.

Builders are responding with incentives of their own. A National Association of Home Builders survey showed 43% of builders cut prices in October, by an average of 6%, while 65% used sales incentives. That is helping some buyers offset financing costs, and analysts say builder-paid concessions can shave as much as a percentage point off mortgage rates on new homes.

For investors, the message is that housing is moving from a scarcity-driven pricing model to a slower, discount-led market in parts of the country. Homebuilders, mortgage lenders and housing-related exchange-traded funds such as ITB and XHB are most exposed to any further deterioration in volumes, while buyers and cost-conscious renters may benefit if the pullback spreads.

Oxford Economics expects the market to remain largely stalled and says a meaningful recovery may not come until around late 2027, once mortgage rates ease. Until then, the key risks are higher-for-longer borrowing costs, sticky inflation and further erosion in affordability.