A buyer-friendly housing market is failing to revive US demand
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The US housing market is shifting in favor of buyers as rising inventory and weaker demand force more sellers to reduce asking prices. However, higher mortgage rates are limiting the benefits of lower home prices, leaving many Americans unable to afford a property.
New figures from Realtor.com show that 20.8% of homes listed for sale had their asking prices reduced in September 2026. This was the highest September figure since 2018 and an increase of 0.9 percentage points from a year earlier.
Meanwhile, the number of homes available for sale rose 5.4% year over year to more than 1.16 million properties. Pending home sales fell 4.1% over the same period, pointing to weaker demand.
The figures suggest sellers are losing some of the pricing power they held during the pandemic housing boom. Yet the shift comes as borrowing costs rise, reducing the number of people able to purchase a home.
According to Freddie Mac, the average rate on a 30-year fixed mortgage reached 7.4% on Oct. 8, up from 6.3% a year earlier. The increase marked the seventh consecutive weekly rise and took mortgage rates to their highest level since November 2023.
For real estate businesses, the combination of weaker demand, growing inventory and higher financing costs presents another challenge for a housing market already struggling to recover.
Rising mortgage rates offset the benefits of lower home prices
Although asking prices are falling in many parts of the US, higher mortgage rates are reducing what buyers can afford.
Realtor.com reported that the national median listing price fell 1.4% year over year to $419250 in September. This marked the 11th consecutive month of annual declines.
However, the decline in prices has been modest compared with the increase in borrowing costs.
For example, a buyer purchasing a $400000 property with a 20% down payment would need a $320000 mortgage. At an interest rate of 6.3%, the monthly principal and interest payment would be approximately $1981. At 7.4%, that payment would increase to around $2215.
That represents an additional $234 a month, or roughly $2800 annually, despite the property price remaining unchanged. The calculation excludes property taxes, insurance and other ownership costs.
A small reduction in the purchase price may therefore do little to improve affordability when mortgage rates are rising.
The impact is particularly significant for first-time buyers, who often have smaller down payments and less financial flexibility than existing homeowners.
Higher borrowing costs are also discouraging existing owners from moving. Many secured mortgages when rates were considerably lower and would face much larger monthly payments if they purchased another property.
This has left many homeowners reluctant to sell, even as those already listing their properties face greater competition.
For demand to recover, buyers would need lower borrowing costs, stronger household incomes or further reductions in home prices.
Growing inventory puts pressure on sellers and homebuilders
The increase in available housing is changing the balance between buyers and sellers.
During the pandemic, limited inventory allowed many homeowners to attract multiple offers and sell properties quickly. Buyers frequently had little room to negotiate.
Those conditions have weakened as more properties remain on the market and sellers compete for fewer buyers.
Realtor.com’s September data showed that national housing inventory was 9.1% below typical prepandemic levels, the smallest gap recorded since the pandemic.
However, the national figures hide substantial regional differences.
In the West, 22.8% of listings had price reductions in September, compared with 21.6% in the South. The figures were 20.7% in the Midwest and 15.2% in the Northeast.
Some metropolitan areas are facing considerably greater pressure. In Salt Lake City, 33.3% of listings had asking price reductions, followed by Denver at 31.5% and Portland at 31.3%.
These differences have implications for real estate developers and homebuilders.
Newly built homes must compete with existing properties. As private sellers become more willing to reduce prices, developers may need to offer similar discounts or financial incentives to maintain sales.
Such incentives can include mortgage rate reductions, assistance with closing costs and property upgrades.
While these measures can attract buyers, they also increase costs and put pressure on profit margins.
Builders must also decide how quickly to complete existing developments and whether to proceed with new projects.
Reducing construction activity could help businesses avoid accumulating unsold homes. However, a prolonged slowdown would affect contractors, building materials suppliers and other companies that depend on residential development.
The increase in available homes therefore has consequences beyond the property market, particularly for businesses linked to residential construction.
The housing market’s recovery depends on more than price cuts
The outlook for the US housing market in 2027 will depend heavily on mortgage rates and whether sellers continue to adjust their expectations.
Higher rates have already weakened demand. Realtor.com reported that pending home sales fell 4.1% year over year in September, following a smaller 0.2% decline in August.
If mortgage rates remain elevated, sellers may face further pressure to reduce prices to secure sales.
However, lower asking prices do not necessarily mean a widespread decline in property values.
Housing conditions vary considerably between regions. Many existing homeowners also have mortgages with interest rates well below current levels. Those who do not need to move may choose to delay selling rather than accept a lower price.
This could limit future price declines, particularly in markets where housing supply remains restricted.
Federal Reserve interest rate decisions will also influence the outlook, although mortgage rates are affected by longer-term bond yields and inflation expectations rather than central bank policy alone.
For homebuilders and property investors, the concern is whether weaker demand will persist long enough to affect construction plans, investment returns and future housing supply.
A prolonged slowdown could lead developers to delay projects, particularly in markets where inventory has increased sharply.
Yet slower construction could also restrict the supply of new homes when demand eventually improves.
The housing market is entering a period in which buyers have more choice and sellers face greater competition. Whether that leads to a recovery in transactions will depend on how far housing costs fall relative to household purchasing power.
For now, buyers have gained negotiating power, but higher mortgage rates mean many still cannot afford to take advantage of it.
Source:
Yahoo Finance
