Distress in America’s Housing Market

The U.S. housing market is showing increasing signs of trouble as home sales drop towards levels not seen in nearly a decade. Foreclosures are climbing, and rising mortgage rates are putting pressure on both buyers and current homeowners.

In September, pending home sales dropped by 4%, marking the largest monthly decline in over three years, as borrowing costs surged past 7%. This data comes from a report by Redfin released on Monday. Additionally, foreclosure filings rose by 13% compared to a year earlier in August, with completed bank repossessions increasing by 42%, according to real estate data firm ATTOM. These trends highlight the growing strain on a housing market that has already been impacted by years of high prices.

The decline in pending sales has brought them to their lowest point since 2014, excluding the early months of the COVID-19 pandemic. In fact, contract signings decreased across all 50 major metropolitan areas that Redfin monitors, a nationwide trend not seen since September 2023.

Redfin’s Chief Economist, Daryl Fairweather, pointed out to Bloomberg that “the mood in the real estate industry has significantly shifted.” He noted that as interest rates rise, fewer individuals can afford to buy homes, leading to a necessary drop in sales.

Recently, the average rate for a 30-year fixed mortgage reached 7.40% on Thursday, the highest level since November 2023, up from 6.30% last year, according to Freddie Mac. This surge in borrowing costs is being influenced by rising Treasury yields, fueled by inflation concerns tied to the ongoing war with Iran, growing federal debt, and increasing budget deficits in Washington.

The situation is pressuring sellers to adjust their strategies. Almost one in five sellers lowered their asking prices in September, while 14.5% of home purchase agreements fell through, marking the highest cancellation rate recorded by Redfin.

The total number of homes available for sale has risen to its highest level since March 2020, granting the dwindling number of buyers more leverage in negotiations. This slowdown is occurring alongside a rise in homeowners losing their properties to foreclosure.

According to ATTOM, a total of 40,277 properties faced foreclosure filings in August, reflecting a 13% increase from the previous year. The number of foreclosure starts rose by 7% year-over-year, and lenders repossessed 5,794 properties, which is a significant 42% increase.

Rob Barber, the CEO of ATTOM, mentioned that August’s data indicates a continued upward trend in foreclosure activity, especially in completed foreclosures, which have shown a distinct annual increase. However, it’s worth noting that foreclosure activity is still below the levels seen before the pandemic, and this uptick doesn’t necessarily suggest a return to the widespread defaults reminiscent of the 2008 financial crisis.

The affordability crisis is hitting younger Americans particularly hard as they try to enter the housing market. In 2025, the median age of first-time homebuyers reached a record 40, up from 38 the year before, while their share of all home purchases fell to an all-time low of 21%, according to the National Association of Realtors.

This same pressure is pushing some borrowers towards riskier financing options. Adjustable-rate mortgages represented 9.8% of mortgage applications during the week ending on September 18, according to the Mortgage Bankers Association. Unlike fixed-rate mortgages, these adjustable-rate loans can lead to higher monthly payments after their initial terms, creating a potential financial challenge.

Borrowers are increasingly opting for this risk in search of lower initial interest rates, despite the Federal Reserve resuming hikes to its benchmark rate. Additionally, Americans held $459 billion in outstanding home equity lines of credit during the second quarter, which is an increase of $142 billion from the low in 2022. Such loans typically have variable interest rates, which exposes borrowers to further risks as short-term rates climb.

Notably, the slowdown in the housing market is particularly acute in the expensive markets along the West Coast. For instance, pending home sales in Seattle fell by 24.4% year-over-year in September, the largest drop among major metro areas, while the median sale price in the city decreased by 4.4%, according to Redfin.

Overall, the housing market conditions are quite uneven, with tighter housing inventories in some parts of the Northeast and Midwest helping to maintain prices, even as sellers in certain Sun Belt and West Coast areas face softening demand.