• September existing-home sales rose 1.5% to a seasonally adjusted annual rate of 3.99 million, beating expectations of 3.95 million.
  • The median sale price hit a record high for September at $417,500, up 1.3% year over year, while inventory reached 1.60 million homes, the highest since November 2019.
  • Despite the sales uptick, stubbornly high mortgage rates and rising financing costs continue to weigh on buyer demand and overall housing affordability.

Modest Rebound, But Challenges Remain

U.S. existing-home sales posted a modest rebound in September, but the housing market remains far from a full recovery. According to the latest data, sales increased 1.5% to a seasonally adjusted annual rate of 3.99 million, slightly above the 3.95 million expected by economists. The median sale price climbed 1.3% year over year to $417,500—a record for September—while inventory rose to 1.60 million homes, the highest level since November 2019.

The uptick in sales, however, comes with caveats. The annualized figure represents the pace of sales if the September rate persisted for a year, not the total number of homes sold during the month. Moreover, the August comparison in the report differs from previously published data, which showed a 2.0% decline to 3.98 million. The discrepancy suggests the August figure may be revised, and the September increase should be viewed with caution until the full revised tables are released.

The primary obstacle for the market is the combination of high home prices and elevated mortgage rates. Freddie Mac (FMCC)’s average 30-year fixed mortgage rate reached 7.40% as of October 8, up from 6.30% a year earlier. That sharp increase in borrowing costs has eroded purchasing power, even as more listings come to market.

“While more inventory is welcome, it’s largely a result of cooling demand rather than a surge in sellers,” said Jake Krimmel, senior economist at Realtor.com (NWSA). Indeed, Realtor.com’s September report showed active listings rose 5.4% year over year, but new listings fell 0.7% and homes under contract dropped 4.1%. Nearly 21% of active listings had price reductions—the highest September share since 2018.

The price record also requires context. The median sale price of $417,500 is a nominal figure for September transactions, not evidence that all properties appreciated. Realtor.com’s median asking price, which reflects a different stage of the transaction process, actually fell 1.4% year over year to $419,250.

Mortgage Lock-In and Supply Constraints

A key dynamic suppressing activity is the so-called mortgage lock-in effect. Roughly half of outstanding mortgages carry rates of 4% or less, according to Fed staff calculations cited by Governor Michael Barr. Many homeowners are reluctant to sell and give up their cheap financing, which keeps inventory tight and supports prices even as demand weakens.

On the supply side, structural constraints persist. The number of homebuilders fell from about 98,000 in 2007 to 49,000 in 2012, and construction has yet to fully recover. Barr also pointed to zoning restrictions, minimum lot sizes, and permitting delays as barriers to new supply. Estimates of the national housing shortfall range from 2 million to 5.5 million units.

Political efforts to address affordability are underway. Recent bipartisan legislation targets rental assistance, zoning barriers, commercial-to-residential conversions, and manufactured housing. Existing tools like the Low-Income Housing Tax Credit and Community Reinvestment Act remain important for financing affordable housing. However, these measures address long-term structural issues and are unlikely to provide immediate relief.

Forward-Looking Indicators Signal Weakness

Despite September’s sales gain, more timely indicators suggest the rebound may not last. Zillow (Z)’s October 6 report estimated that newly pending sales fell 8.5% year over year, while Redfin (RDFN) data showed pending sales dropped about 4% from August to September, with 14.5% of purchase agreements falling through.

The slowdown is also affecting new construction. In a recent PBS interview, economist David Wessel noted that major builders like Pulte (PHM), Lennar (LEN), and D.R. Horton (DHI) are anticipating weaker demand and scaling back construction, which could exacerbate the supply shortage.

First-time buyers, who represented 31% of September purchases, up from 30% in August, may find more choices and negotiating room. But high financing costs and down-payment requirements remain significant barriers. Meanwhile, renters and lower-income households continue to struggle, with roughly half spending at least 30% of their income on rent.

Outlook: No Quick Fix

The September sales increase offers a glimmer of hope, but it does not signal a turning point. Affordability challenges are likely to persist as long as mortgage rates remain elevated and supply constraints go unresolved. The Federal Reserve’s recent rate hike and ongoing inflation pressures complicate the outlook for borrowing costs.

In the short term, buyers with financing may gain some leverage from increased inventory and price reductions. However, weak pending sales suggest the September rebound may fizzle. A durable recovery will require both lower mortgage rates and a meaningful increase in housing supply—neither of which appears imminent.

As Danielle Hale, chief economist at Realtor.com, put it: “Buyers have more leverage, but higher rates limit their ability to use it.” For now, the housing market remains stuck in a holding pattern, with prices at record highs and activity subdued.

Correction: An earlier version of this article misstated the August sales comparison. The August decline was previously reported as 2.0%, not 3.2%.