U.S. Home Sellers Are Finally Blinking on Prices — and Builders Are Taking the Hit

U.S. Home Sellers Are Finally Blinking on Prices — and Builders Are Taking the Hit

After holding firm for most of the year, American home sellers are cutting prices at a record clip for the season. Realtor.com's September monthly report shows 20.8% of active listings carried a price reduction — the highest share for any September on record, and the highest for any month since October 2022. Data firm Parcl, cited by MarketWatch, puts it even more bluntly: about 42.6% of U.S. listings recorded a price cut in September, with an average reduction of 5.1%. In Salt Lake City, roughly one in three listings was marked down; sellers in Colorado are cutting at rates above most other states.

One in five listings now carries a price cut

"September's housing data show that buyers are gaining leverage, but higher mortgage rates are limiting how much of it they can use," said Danielle Hale, chief economist at Realtor.com. "Inventory is improving and more sellers are adjusting their prices, yet the decline in pending sales makes clear that affordability remains a central constraint as autumn gets underway."

The demand side of the ledger is deteriorating fast. Compass chief economist Mike Simonsen found pending sales down 10.5% year-over-year for the most recent week and down 8.4% for September as a whole. Zillow's market report tells a similar story: pending sales down 8.5% and closed sales down 2.5% versus a year earlier. Inventory is still climbing — up 4.4% year-over-year in Simonsen's data — but not because new listings are flooding in. Homes are simply sitting longer.

Mortgage rates hit a three-year high

The proximate cause is financing costs. Freddie Mac's survey showed the average 30-year fixed rate at 7.28% for the week ending October 1, the highest in nearly three years and the largest single-week jump in about four years. The Mortgage Bankers Association's measure runs even hotter: 7.49% for the week ending October 2, a three-year high.

The driver is the bond market, not the Fed. The 10-year Treasury yield has climbed to roughly a 20-year high as oil prices, inflation fears and heavy government borrowing push yields up. The Federal Reserve has not moved since its September 16 hike to a 3.75%–4.00% range, and markets are pricing in a hold at its October 27–28 meeting.

A survey by John Burns Research and Consulting explains why contracts are collapsing first: only 6% of U.S. homeowners and renters say they would accept a mortgage rate of 7.5%. The "magic rate" — one about half would find acceptable — sits between 5% and 5.49%.

Builder stocks fall first

Resale sellers are the ones cutting prices, but builders are taking the pain in the market. A Dow Jones roundup on October 7 noted the SPDR S&P Homebuilders ETF fell more than 2.5% in a day and is down over 9% year-to-date. Over the past month, the iShares U.S. Home Construction ETF has dropped 9.9%, with D.R. Horton, PulteGroup and Lennar all sliding.

The logic is straightforward: higher rates make the monthly payment gap between new and existing homes impossible to ignore. Some national builders are clearing spec inventory before year-end with rate buydowns in the 5% range — deals resale buyers, stuck with 7%-plus market rates, cannot match. The competitive balance is tilting toward the more flexible builders, but only after they cut their own margins first.

Watch the NAR report on October 13

The next key data point lands October 13, when the National Association of Realtors releases its September existing-home sales report. Zillow chief economist Mischa Fisher expects sales to stay below last year's levels through the fourth quarter, but adds a caveat: "it's not out of the question that rates will decline as rapidly as they rose, which would bring both buyers and sellers back to the market. At this point in the calendar, the question is whether they would sit out until next spring."

For buyers, Simonsen's advice is practical: in a slow market, finding a motivated seller is bargaining power. Winter, it seems, is arriving early in the housing market this year.