The American housing market weakened sharply in September as rising mortgage rates discouraged homebuyers and slowed residential construction, according to reports released Tuesday. Pending home sales fell to their lowest level since records began in 2001, while housing starts declined more than economists had anticipated, adding to concerns about affordability and the availability of new homes.

The National Association of Realtors reported that its pending home sales index plunged 7.3% in September to 66.0, dramatically missing economists’ expectations of a 0.5% decline. The index was also down 11.3% from September 2025, signaling a substantial drop in contracts for existing homes.

Separately, the Commerce Department reported that housing starts fell 5.2% to a seasonally adjusted annual rate of 1.221 million homes, below expectations of approximately 1.3 million. Starts were down 7.4% compared with the same period a year earlier.

Mortgage rates have been a major factor in the slowdown. Freddie Mac reported that the average rate on a 30-year fixed mortgage climbed from 6.66% in late August to 7.28% at the beginning of October. The rate reached 7.40% on October 8 and remained at that level the following week, marking its highest level in nearly three years.

Lawrence Yun, chief economist of the National Association of Realtors, said rapidly rising borrowing costs had weakened market conditions in September. He noted that employment and income growth can support home purchases, but mortgage rates have an especially significant effect on affordability.

The decline in pending sales affected every major region of the country. Contract signings fell 9.2% in the West, 8.2% in the South, 6.5% in the Midwest, and 4.2% in the Northeast. All four regions also recorded year-over-year declines.

Pending home sales measure signed contracts before existing-home transactions are completed, typically providing an indication of sales activity one or two months ahead. September’s sharp drop therefore points to the possibility of further weakness in completed home sales later this fall.

Construction activity also deteriorated. Single-family housing starts fell 4.6% to an annualized rate of 859,000, their lowest level in a year. The August figure was revised downward from 918,000 to 900,000, indicating that the earlier rebound in construction was weaker than initially reported.

Multifamily housing starts, which include apartments and condominiums, declined 6.7% to an annualized rate of 362,000. That figure was 24.9% below its level a year earlier.

Building permits, which offer an indication of future construction, provided little reassurance. Total permits slipped 0.2% to an annualized rate of 1.4 million. Permits for single-family homes fell 4% to 845,000, their lowest level in approximately three and a half years, while permits for buildings containing five or more units increased to 503,000.

The weakening housing market was also reflected in builder sentiment. The National Association of Home Builders and Wells Fargo reported Monday that their Housing Market Index fell three points to 29 in October, its lowest reading since June 2012. Any reading below 50 indicates that more builders view market conditions as poor rather than good.

All three components of the survey weakened. The index for current sales conditions fell to 33, expectations for sales over the next six months dropped to 32, and prospective buyer traffic declined five points to 18, its lowest reading since April 2012 outside the initial disruption of the pandemic.

Builders have increasingly relied on discounts and other incentives to attract buyers. The survey found that 43% of builders cut home prices in October, the largest share since the association began tracking the measure in 2020. The average price reduction was 6%, while 65% of builders reported offering sales incentives.

Higher mortgage rates are adding to existing pressures from construction financing, materials, energy, and labor costs. Robert Dietz, chief economist of the Home Builders Association, said affordability challenges, elevated expenses, and weaker consumer confidence were keeping prospective buyers on the sidelines despite continued underlying demand.

The downturn presents a difficult challenge for housing affordability. Higher borrowing costs are reducing demand, but the accompanying slowdown in construction could also limit the supply of new homes in the years ahead, making it harder to address the country’s housing shortage.

Yun suggested that the recent rise in mortgage rates might be nearing its end, although he warned that inflation and higher energy prices remained sources of uncertainty. Despite the sharp decline in transactions, widespread home-price declines had yet to materialize. The limited supply of distressed properties has helped support prices, while some buyers and sellers remain on the sidelines waiting for more favorable borrowing conditions.