September Housing Market Update: Mortgage Rate Drops Ignite Housing Market Activity

Lower mortgage rates in September sparked renewed activity in the housing market, with both buyers and sellers returning in greater numbers.

The average interest rate on a 30-year mortgage dropped to a two-year low of 6.08%, giving buyers a significant boost in purchasing power. This shift led to a 2.5% increase in pending home sales compared to August, the largest monthly gain since January 2023, according to Redfin.

Year-over-year, pending home sales rose by 3.1%, marking the biggest annual increase since May 2021.

This dip in mortgage rates, following a series of Federal Reserve actions, allowed more buyers to clear the affordability hurdle, with Redfin reporting that buyers in September could afford homes worth $40,000 more than they could just four months earlier.

While the rate cut and subsequent buying power surge brought more buyers into the market, it was not enough to prevent rates from slightly rising again after the Fed’s decision in mid-September, which had already been priced into the market.

Nonetheless, this boost in affordability provided temporary relief to a market struggling with affordability challenges for much of the year.

Builders Regain Confidence Amid Falling Costs

The homebuilding sector also saw a resurgence in confidence in September, buoyed by lower mortgage rates and the expectation of further interest rate cuts. The National Association of Home Builders (NAHB) reported a rise in its Housing Market Index (HMI) for the first time in five months, climbing two points to 41.

Builder sentiment had been on a four-month decline due to rising costs and slowing demand, but the recent rate cut by the Federal Reserve has brought optimism back to the sector.

While builders are still grappling with elevated construction costs, particularly for materials like lumber and steel, lower rates are expected to alleviate some of the financial pressures on buyers. Additionally, a forecasted easing in monetary policy could help reduce the cost of land development and construction loans, according to NAHB Chief Economist Robert Dietz.

Even as builder sentiment improved, the NAHB reported a reduction in the share of builders cutting prices—down one percentage point from August to 32% in September.

The average price reduction fell below 6% for the first time since mid-2022. Sales incentives also dipped, with 61% of builders offering incentives in September, down from 64% the month prior.

Southern Markets Favor Buyers as Inventory Climbs

The housing market remained neutral overall in September, but certain regions, especially the Southeast, tipped in favor of buyers. Zillow reported that 10 of the 50 largest U.S. metros are now classified as buyers’ markets, with cities in Florida, Georgia, Texas, Tennessee, and Louisiana leading the trend. Metro areas like Atlanta and Jacksonville saw a significant increase in new listings, easing some of the competitive pressure seen earlier in the year.

One of the driving forces behind this shift is the abundance of new construction in Southern markets, which has helped unlock inventory. Additionally, a greater share of cash purchases and free-and-clear homeownership in the region has further contributed to the inventory growth.

In contrast, coastal markets like New York and San Francisco continued to see homeowners locked into their properties due to higher mortgage rates, limiting the number of homes available for sale.

Inventory levels in the South rose significantly year-over-year, with Realtor.com reporting a 42% increase in active listings in the region. Although total inventory is still 23.2% below pre-pandemic levels nationwide, the South is closing the gap faster than other parts of the country.

This inventory growth has also led to homes spending more time on the market. In Tampa, for example, homes spent an average of 22 more days on the market than they did last year, according to Realtor.com. This trend is providing buyers with more negotiating power and options.

Prices Continue to Rise Despite Inventory Gains

Despite the increase in inventory, home prices continue to climb across much of the U.S. The national median home sale price reached $428,212 in September, up 3.9% from a year earlier, according to Redfin.

The increase in home prices is largely driven by the persistent shortage of homes for sale, particularly in high-demand markets. New listings in September were still 17.7% below pre-pandemic levels, contributing to the upward pressure on prices.

In some markets, home values fell month-over-month, particularly in areas like San Francisco (-1.1%), San Jose (-0.9%), and Tampa (-0.7%), but year-over-year gains remained strong in most metro areas. Cities like San Jose, Hartford, and New York saw annual price increases of 7% or more, reflecting strong demand despite the challenging economic conditions.

Zillow reported that the strongest sellers' markets were concentrated in the Northeast and parts of California, including San Jose, Buffalo, and New York.

Although prices are rising, sellers are increasingly offering price cuts to attract buyers. Redfin reported that 25.1% of listings in September had a price reduction, an increase of 1.2 percentage points compared to last year. This suggests that while demand remains strong, some sellers are adjusting their expectations as the market stabilizes after a period of intense competition.

Hurricane Season Disrupts Florida’s Housing Market

Florida's housing market faced additional challenges in September due to the devastating impact of Hurricanes Helene and Milton.

The storms caused significant disruptions in several major metro areas, including West Palm Beach, Tampa, and Miami, where closed home sales dropped by over 18% year-over-year, according to Redfin. West Palm Beach experienced the largest decline, with sales falling by 23%, the most significant drop among the 50 largest U.S. metro areas.

The hurricanes not only caused physical damage to homes but also delayed closings, as lenders required reinspections and insurers temporarily stopped issuing new policies.

Prior to hurricane season, Florida's housing market had already been cooling due to rising inventory and a housing insurance crisis. These factors, compounded by the natural disasters, are likely to slow the market further in the coming months as homeowners focus on recovery and repair.

Wrap-Up

September brought a notable shift in the U.S. housing market, as falling mortgage rates revived buyer and seller activity across the country. Builder confidence rebounded, Southern markets tipped in favor of buyers, and home prices continued to rise despite inventory gains.

However, challenges remain, particularly in regions affected by natural disasters, where recovery efforts are likely to impact market activity well into the fall.