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By Suzanne Blake
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The U.S. housing market could face another difficult stretch as stubbornly high mortgage rates keep potential buyers on the sidelines, as Zillow has warned that the slowdown may get worse before it gets better.
Newly pending home sales fell 17 percent in October compared with a year earlier, the largest annual decline since 2023, according to Zillow. Mischa Fisher, the real-estate marketplace's chief economist, said the decline reflects the affordability pressure facing buyers and warned that November could be even weaker.
“Next month is likely going to be the worst of it. I expect the pace of the slowdown to ease into the new year,” Fisher wrote. “There are deals to be had for buyers able to brave the affordability headwinds in the coming months, and the continued inventory buildup means there is a lot of upside for sales into next year if we get rate relief.”
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Why It Matters
Affordability is one of the biggest obstacles facing Americans who are trying to purchase a home, and the latest rise in borrowing costs has only exacerbated the situation.
The average 30-year fixed mortgage rate was 7.18 percent as of November 5, according to Freddie Mac. While that was down from 7.24 percent the previous week and was the third consecutive weekly decline, it was substantially higher than the 6.22 percent recorded one year earlier.
Meanwhile, Zillow said the typical U.S. home value declined 0.6 percent from September to October but remained 0.7 percent higher than a year earlier.
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What To Know
Fisher said the immediate picture of the U.S. housing market could get worse in November but there could also be an opportunity for buyers who can afford to remain in the market.
"There are deals to be had for buyers able to brave the affordability headwinds in the coming months, and the continued inventory buildup means there is a lot of upside for sales into next year if we get rate relief," Fisher said.
Zillow's latest mortgage rate forecast also said rates are expected to remain above 7 percent for the rest of 2026 through mid-2027, potentially creating another difficult spring homebuying season next year.
“We're looking at a sluggish finish to 2026, with a possible improvement next year if mortgage rates cooperate,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek. “But I wouldn't count on a quick rebound.”
How Is the Housing Market Doing?
October showed just how quickly higher rates can weaken demand.
Newly pending sales declined 17 percent year over year, which Zillow identified as the largest annual decrease since 2023.
“Housing is stuck in a quagmire and going nowhere quickly. Higher interest rates, coupled with elevated home prices, continue to keep the real estate market at bay,” Kevin Thompson, the CEO of 9i Capital Group, told Newsweek.
“If you are sitting on a nice, cushy mortgage rate, there is little incentive to move unless you absolutely have to or can afford to pay cash for your next home.”
Affordability is a major part of the equation.
Zillow calculated that the estimated monthly mortgage payment on a typical U.S. home reached $2,004 in October, assuming a 20 percent down payment and excluding taxes and insurance. That was 12.8 percent higher than a year earlier and 4.8 percent higher than September, the largest monthly increase in four years.
When property taxes, homeowners insurance and maintenance are included, a median income household would spend roughly 41.5 percent of its income on housing costs, compared with approximately 39.2 percent a year earlier.
“Mortgage rates play a substantial role, but to be fair, the bigger issue is the overall cost of the home,” Thompson said. “No one would complain much if a house cost $50,000 and the mortgage rate was 15%. But when that same conversation involves a $400,000 home with a 7% mortgage rate, that is a bitter pill to swallow.”
What Is Happening With Mortgage Rates?
There is some short-term good news for buyers.
The average 30-year fixed rate has fallen for three consecutive weeks, from 7.40 percent on October 15 to 7.18 percent on November 5, according to Freddie Mac.
But the longer-term picture is still discouraging.
Zillow expects mortgage rates to remain above 7 percent through roughly the middle of 2027, so buyers waiting for them to come down will likely have to continue delaying their home purchase plans.
“For buyers who can comfortably afford the payment, this could be an opportunity to negotiate price reductions or seller credits,” Ryan said. “But I'd be careful about the popular advice to buy now and refinance later. What if rates don't fall? You'd better be comfortable with today's payment.”
Will Home Prices Come Down?
High borrowing costs do not necessarily mean buyers should expect a dramatic collapse in home prices.
Zillow's data indicate home values have been comparatively resilient even as sales activity declined. The typical U.S. home value was just 0.7 percent higher in October than it had been a year earlier, despite declining 0.6 percent from the previous month.
That combination can create a frustrating market where sellers are reluctant to substantially lower prices while buyers struggle to qualify for mortgages at rates above 7 percent.
“If some geopolitical factors start to lessen in the new year and inflation declines, we could finally see a break in the increasing trend for mortgage rates,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “The odds for next year at this point, though, are that next year's housing market will more than likely look very similar to this year's.”
What Happens Next
Mortgage rates will likely heavily impact whether the housing market can rebound in 2027.
For now, there are conflicting signals. Rates have declined for three consecutive weeks, providing some immediate relief. But at 7.18 percent, the average 30-year fixed mortgage remains nearly a full percentage point above its level a year earlier.
“I think 2027 could bring more activity, but lower rates might also bring competing buyers back,” Ryan said. “Waiting for cheaper financing doesn't guarantee a cheaper house.”
Contact Newsweek editors on this story: Samantha Beech and Oliver Pritchard.
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