Homebuying demand drops to the lowest level since the pandemic

The change no one saw coming

At the end of 2025, here’s how James and I summarized what most forecasters were projecting for mortgage rates in 2026:

“Mortgage rates will remain above 6% – Most of the top forecasters see the 30-year fixed mortgage rate staying above 6% throughout 2026. However, it will remain lower than the 2025 average of 6.6%.” 

They were (partially) correct: mortgage rates stayed above 6%, all right. But they certainly haven’t remained below last year’s average of 6.6%. 

I don’t blame them, though. Nobody was expecting us to go to war with Iran in 2026. But we did, and as I detail in today’s edition, it’s having huge consequences for our industry. 

Let’s get into it.

- David

Inflation spikes unexpectedly 

U.S. headline CPI rose to 3.7% year-over-year in September, according to the latest report from the BLS. That’s the second-highest level since 2023. Core CPI – which excludes food and energy prices – climbed to 2.6% year-over-year, increasing 0.3% month-on-month. Both numbers were higher than expected. 

Here are the other key points to know:

• Energy prices were the main driver: The spike in inflation was driven by rising gas and diesel prices.

• It’s not just energy: Prices rose in airfares, used car prices, recreation, medical, and apparel

• Above expectations: Both headline and core inflation came in higher than expected. In fact, core Inflation for the past 3 months is running at well over a 3% annualized pace.

• Inflation wiped out wage gains: Inflation rose 3.7% in the past year, wiping out 3% average wage gains.

• Mortgage rates will be above 7% for the foreseeable future: The Mortgage Bankers Association forecasts 30-year mortgage rates averaging 7.3% in Q4 2026 and staying above 7% through 2027, while Fannie Mae now puts the average rate on the 30-year fixed at 7.4% for the fourth quarter of this year and 7.5% through all of 2027.

• 50 - 50 chance of a Fed hike in October: Redfin’s chief economist says that there is a 50/50 chance that the Fed will raise interest rates in October, while the CME FedWatch tool says the chances of a hike are around 25%.

My take

The Fed may have talked itself into a corner. Just last week, officials signaled they weren’t in a hurry to raise interest rates at consecutive meetings. Markets believed them, and mortgage rates eased. Then core inflation came in hotter than expected. Raise rates in October, and the Fed could catch investors off guard (markets put the odds at only about 25%), potentially sending mortgage rates sharply higher. Hold steady, and investors may conclude the Fed isn’t taking inflation seriously enough, pushing long-term rates higher anyway. Either way, agents need to prepare homebuyers for higher mortgage rates for longer.

Pending home sales AND closed home sales sink to record lows

U.S. pending home sales fell 4% in September to 316,652. Except for April 2020 during the pandemic freeze, that’s the lowest pending sales level since spring 2014. 

Closed sales also declined, falling 1.6% to 282,433, the lowest level since the end of 2023. That’s according to Redfin’s latest housing market report.

Here are the key takeaways from the update:

• Biggest monthly drop in more than three years. Pending sales declined 4% from August and 8.6% from September 2025. The September count of 316,652 sits just above April 2014 (314,664). The only lower month since then is April 2020 (299,829).

• Mortgage rates drove the decline. The weekly average mortgage rate reached 7.28% at the end of September, its highest level in three years. The monthly average 30-year fixed rate was 6.86%, up 0.51 points from a year earlier.

• Every major metro saw fewer pending sales. Pending sales fell year over year in all 50 of the most populous U.S. metros. That last happened in September 2023, the last time rates stayed above 7% for a sustained period.

• The West Coast took the biggest hits. Seattle posted the steepest decline (-24.4%), followed by Los Angeles (-16%), San Diego (-15.8%) and Anaheim, CA (-15.5%). The smallest drops were in Montgomery County, PA (-1.6%), Pittsburgh (-2.1%) and West Palm Beach, FL (-2.2%).

• Closed sales hit their lowest level since late 2023. Closed sales fell 1.6% from August and 4.3% from a year earlier to 282,433. Most of those deals went under contract in July or August, when rates were rising and economic uncertainty kept many buyers on the sidelines.

• Closed sales varied widely by metro. They rose most in Indianapolis (3.2%), Orlando, FL (3%) and Nassau County, NY (2.8%). They fell most in Philadelphia (-13.8%), Denver (-13.7%) and Detroit (-12.4%).

My take

Without a doubt, rising mortgage rates are taking a huge toll on the market. The clearest sign is that pending sales fell in all 50 major metros, something we haven’t seen since rates last stayed above 7% in 2023. And since pending sales are a leading indicator, they show where closed sales are headed. September’s closings mostly reflect contracts signed over the summer, so the full impact of this pullback probably won’t show up in closed sales until October and November. If rates stay elevated, expect those numbers to keep sliding before they get better.

Markets where sellers massively outnumber buyers

Homebuyers had more negotiating power in September than at any time since the housing crash that followed the 2008 financial crisis, according to Redfin. Nationally, there were 63% more home sellers than buyers. That is the widest gap since Redfin’s records began in 2013.

That’s because both sides of the market moved in favor of buyers. The number of buyers fell to the lowest level on record, while the number of sellers rose to its highest point since 2020.

As a result, 41 of the 50 most populous U.S. metro areas are now buyer’s markets, the most in Redfin’s records. In Miami, for example, there are roughly 2.6 sellers for every buyer.

Here are the top markets where sellers outnumber buyers by the widest margin:

1. Miami, FL – 158.9%

2. Nashville, TN – 152.3%

3. Houston, TX – 134.6%

4. Austin, TX – 130.9%

5. San Antonio, TX – 125.6%

6. Las Vegas, NV – 125.5%

7. Orlando, FL – 123.0%

8. Dallas, TX – 121.9%

9. Fort Lauderdale, FL – 117.8%

10. Atlanta, GA – 110.4%

My take

This sounds like great news for buyers, but there's a catch. Sellers aren't flooding the market. Buyers are leaving it. High home prices, rising mortgage rates, and economic uncertainty have sidelined so many buyers that those still shopping can be picky. They can negotiate harder, demand concessions, or simply walk away. The Sun Belt illustrates this imbalance particularly well, as years of homebuilding have left buyers with plenty of options even as demand has cooled. Redfin calls this a buyer's market "born out of caution, not strength." In other words, conditions are the best they've been in years for the shrinking pool of people who can still afford to buy.

Schematics

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Foundation Plans

Advice from David to win the day

How do we agents find leads and close deals when mortgage rates are surging as they are? That’s the subject that I tackled in last week’s edition while piggybacking off of a great piece by Tom Toole. You can read part one here if you missed it. 

In part one, I covered the mindset: deals don’t disappear when rates climb. Investors keep buying and life events keep normal homebuyers moving and buying homes. In today’s edition, I'm getting into the nitty-gritty. Exactly what should you say when you reconnect with your leads, and what should you say in response to their hesitation?

3. Do your homework, keep it simple, and don’t overtalk it – Do a little homework first: pull up the lead in your CRM, review your last conversation, and figure out how long it’s been since you talked. Then make the call:

“Hi, Jack, it’s [your name] with [brokerage]. We last talked about 90 days ago, and I wanted to check in. Are you still thinking about making a move, or have you put things on hold?”

Now be quiet and let them answer.

Each piece has a purpose. The opening identifies you, the fact gives context, and the question offers two easy answers. Either response opens the door to a real conversation.

4. Treat “on hold” as an invitation. – Plenty of agents hear “we’ve paused” and wrap up the call. Don’t. Ask a follow-up instead:

Jack: “We’ve kind of put everything on hold.”

You: “I’d love to hear more about that. What’s on hold?”

Jack: “Rates spooked us. Plus my wife might get transferred to Dallas next spring, so we’re kind of in limbo.”

Rates were the surface answer. The transfer is the real story, and you’d never have heard it without asking. A simple “tell me more” is free, and it’s often the question that uncovers the deal.

5. Find the motivation first. – If they’re still in the market, ask what they want most in their next home and what the move would mean for their family. When rates are high, motivation matters more than anything else. Listen for the D’s: death, divorce, dislocation, default, diamonds, diapers, downsizing, and dogs. Any one of them can push rates to the back of a client’s mind.

Once you understand why they’re moving, cover the rest with LPMAMA: location, price, motivation, agent, mortgage, and appointment. The final two are where you discuss financing and set the meeting.

Tom goes into greater detail in his piece. I highly recommend that you read it. But don’t stop there. Before you make your calls, make sure you role-play with either a fellow agent or an AI like ChatGPT. This is truly where verbally chatting with an AI can help you. Use voice mode and ask it to play a hesitant lead who’s ‘put things on hold.’ Run the script until ‘tell me more’ comes out naturally.”

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

“You’ve gotta keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life.” — Warren Buffett

Don’t let events or other people set your agenda. Stay ruthlessly focused on your goals — your time is limited, and you only get one life. Make the most of it. Have a wonderful week.

We’ll see you back here on Friday!

- David