US Housing Market Softens as Mortgage Applications Plummet Despite Rate Dip
Global real estate continues to grapple with high borrowing costs, as US mortgage demand drops for the seventh consecutive week.
The story
The US housing market is experiencing a renewed period of softening, driven by persistent high long-term yields and mortgage rates. Nationally, aggregated home prices saw a year-over-year increase of just 1.0% between September 2025 and September 2026, a deceleration from the 1.3% growth recorded the previous month. The number of major regional housing markets reporting year-over-year price declines is also on the rise, indicating a broader cooling trend.
Meanwhile, mortgage application activity continues to wane. In the week ending October 16, 2026, mortgage applications fell by 5.3%, marking the seventh consecutive weekly decline. This occurred despite a slight easing in the average 30-year fixed contract rate, which dipped to 7.41% from 7.50%. Purchase applications alone dropped 7% to their lowest level since early January 2025. Building permits in September remained largely unchanged at an annualized rate of 1.4 million, while housing starts modestly declined to 1.2 million.
The contrarian view
A contrarian view suggests that the US housing market's recent softening is not a minor blip but a renewed acceleration of declines. Lance Lambert of ResiClub highlighted on October 21, 2026, that the latest jump in long-term yields and mortgage rates has coincided with a swift re-acceleration in market softening, with a growing number of major regional markets now seeing year-over-year price declines. This challenges narratives of a stable or merely sluggish market, pointing instead to a more significant downturn ahead.
What we'll be watching
- Freddie Mac's next Primary Mortgage Market Survey for 30-year fixed rates, expected today, October 22, 2026.
- Upcoming US Treasury auctions, which are gaining increased attention for their impact on bond yields and mortgage rates.
- Local active inventory levels, particularly in regions like Texas, Florida, Washington, and Colorado, where inventory already exceeds pre-pandemic levels.
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