Mortgage Rates Slow Their Climb, but Buyers Still Face an Uphill Battle

In short: High rates have brought an early winter to the housing market. Newly pending sales, a leading indicator of future closings, were down 8.5% in September, portending a soft close to the year. 

Mortgage rates climb, but lose some steam

Mortgage rates continue to move higher, though the climb appears to have slowed compared with the past few weeks. Rates are now at their highest level in about three years, but they seem less intent on bulldozing through the 2023 high.

Zillow expects the next move is more likely down than up, but our forecast for relief is modest– we expect the 30-year fixed rate to ease to 7.1% by the end of 2026 and only 6.5% by the end of 2027.

What’s the impact on housing? 

Given the challenging affordability environment, home sales are likely to dip in 2027. 

Housing activity always tails off this time of year, but sky-high mortgage rates have brought an even steeper dip. Newly pending sales, a leading indicator of future closings, fell 8.5% year over year in September.

Despite a pullback in demand, home prices are insulated by a continued lack of inventory, which remains 16% below pre-pandemic norms. Most sellers then become buyers, so the same headwinds facing first-time buyers are also helping to keep a lid on new listings. 

Not coincidentally, the rental market is seeing renewed strength as would-be buyers are sidelined. Rent growth has accelerated for six consecutive months, according to the Zillow Observed Rent Index.