Mortgage rates finally moved down this week, but nearly every other housing number released showed a market still adjusting to the jump in borrowing costs since late summer. Builders, buyers and apartment lenders all reported conditions worse than a month ago. Washington, meanwhile, went after the fees around a mortgage rather than the rate itself.
Builders and buyers pulled back
The week opened on Oct. 19 with the National Association of Home Builders’ Housing Market Index falling three points to 29, the lowest reading since June 2012. All three components declined, and buyer traffic fell to its weakest level since April 2012, outside the pandemic’s onset.
The Census Bureau’s September residential construction report on Oct. 20 showed what builders are doing about it. Housing starts ran at a seasonally adjusted annual rate of 1,221,000, down 5.2% from August and 7.4% from a year earlier. Single-family starts fell 4.6% to 859,000. Permits, which point to future building, were close to flat overall at 1,400,000. Single-family permits, however, fell 4.0% to 845,000. Completions ran at 1,192,000, 14.0% below a year earlier, so fewer new homes are reaching the market as well.
Contracts on existing homes fell further. The National Association of Realtors said on Oct. 20 that pending home sales dropped 7.3% in September and 11.3% from a year earlier, with declines in every region. NAR Chief Economist Lawrence Yun attributed the drop to “fast-rising mortgage rates.” Because pending sales lead closings by one to two months, the report points to weak October and November sales.
The public builders’ third-quarter reports showed the same strain. PulteGroup said net income fell 19% and orders dropped in five of its six regions, with Florida the exception, and its chief executive said higher rates had “pushed even more consumers to the sidelines.” On Oct. 20, Dream Finders Homes closed its $2.2 billion purchase of Beazer Homes, a deal that consolidates the builder ranks in a difficult market. Dodge Construction Network said total construction starts slipped 1.5% in September, with commercial starts down 18%.
A small break on rates
The relief came on Oct. 22. Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed rate at 7.32%, down from 7.40% the week before, which had itself been unchanged from the prior week. The 15-year averaged 6.68%. A year ago the 30-year stood at 6.19%. One weekly decline does not undo a rise of more than a percentage point over the past year, and the Federal Reserve meets next week.
Signs of distress are building, though from a low base. Auction.com reported on Oct. 22 that completed foreclosure auctions rose 25% from a year earlier in the third quarter, the most since early 2020, led by FHA-insured loans and mortgages originated in 2022 or later.
Washington targets fees, investors and listings
President Trump signed an executive order on Oct. 22 that directs the Federal Housing Finance Agency to cancel mortgage insurance automatically once borrowers’ equity, measured at current home values, is high enough. It also seeks to make a refinance title-insurance waiver permanent and creates a task force on factory-built housing. The same day, the Treasury Department proposed rules for the federal ban on large investors buying single-family homes, including how build-to-rent operators can keep buying once the ban takes effect Jan. 7, 2027.
The dispute over private listings grew. Six multiple listing services, including Arizona’s ARMLS and Denver’s REcolorado, sued Compass in federal court in Manhattan on Oct. 22, asking a judge to declare their listing-sharing rules lawful before Compass can challenge them.
Commercial capital tightens
Rates are also weighing on commercial real estate. The National Multifamily Housing Council’s October survey found 17% of apartment executives with maturing loans see possible foreclosures, and its debt financing index fell to 10 from 46 in July. Blackstone said its opportunistic real estate funds lost 3.2% in the third quarter. The week also had signs of demand. Bouwinvest joined Tishman Speyer’s $1.5 billion U.S. office buying group, starting with the Chrysler Building, and Vornado and Ken Griffin closed a $3.3 billion loan for 350 Park Avenue as construction got underway.
What changed
A week earlier, the open question was whether higher rates were slowing housing or stopping it. This week’s data mostly answered it. Contract signings fell 7.3% in a month, builder confidence fell to its lowest since 2012 and single-family starts and permits declined. Rates eased only slightly, and only at the end of the week. On our reading, the near-term direction of housing depends heavily on the Fed’s Oct. 27β28 meeting. Policy changes like the mortgage insurance order and the investor rules will take months to reach buyers.
