The 7% mark is a psychological line in the sand for American homebuyers. The renewed climb in mortgage rates is stretching the cold spell in the US housing market even longer.

According to the latest weekly data from Freddie Mac, the average rate on a 30-year fixed mortgage has risen to 7.4%, up another 0.12 percentage points week over week after the largest single-week jump since October 2022, setting a new high since the end of 2023.

In an October 12 report, national real estate brokerage platform Redfin said that once rates crossed the 7% threshold, a large wave of prospective buyers was shut out of the market. Excluding the abnormal shutdown in the spring of 2020, pending home sales across the country have sunk to their lowest level since 2014.

Daniel Ho, co-founder and group managing director of Kuala Lumpur-based Asian real estate technology company Juwai IQI, told Yicai that the return of mortgage rates above 7% has dashed hopes for any near-term improvement in housing affordability. In his view, 7% is a psychological line, and the US housing market will enter a standoff period of "shrinking volume, stable prices, and gradual correction."

An Ice Age on the Transaction Side

High borrowing costs are systematically severing the transaction chain. Redfin data shows that among the 50 largest metropolitan areas in the country, pending home sales fell across the board for the first time in nearly three years. The last time such a broad decline occurred was September 2023, when mortgage rates were also under prolonged pressure above 7%.

The West Coast suffered the steepest drops, with Seattle leading the decline at 24.4% year over year, followed by Los Angeles, San Diego, and Anaheim, all down more than 15%. In these high-priced markets, even a small rate adjustment is enough to push large numbers of hesitant buyers out, while the marginal slowdown in tech employment in Seattle and elsewhere has further suppressed real demand.

Leo Lee, senior vice president at Sotheby's International Realty covering Maryland, Virginia, and Washington, DC, told Yicai that entry-level homes priced around $1 million have nearly fallen into a "zero-showing" stalemate. He observed that most owners are not in a hurry to sell at a loss, but instead choose to pull their listings and "ride out the winter," hoping to re-enter the market next spring once the market becomes desensitized to 7% rates as the norm.

Leo Lee said bluntly that the mortgage rate jump from 6.5% to 7% took only ten days, and the rapid rate move caught the market off guard. He expects the market cycle to lengthen significantly in the coming months, with the average days to sell possibly doubling from just over 20 days to more than 40, forcing agents to rely on multiple rounds of carefully curated showings to close deals.

Brian Connelly, a senior Redfin Premier agent in Boston, has also observed this loss of seller bargaining power. "For the past decade, if you listed a home, it sold almost 100% of the time, usually quickly and often with multiple competing offers. But now the situation has completely changed. If you don't price slightly below comparable nearby listings and don't carefully prepare and stage the home before listing, it easily becomes a long-term stale listing that ultimately has to be discounted or taken off the market," he said.

An even more noteworthy warning signal is the abnormal surge in contract cancellation rates. In September, 14.5% of signed contracts nationwide ultimately fell through, a record high outside the extreme period of March-April 2020. Redfin's analysis suggests that with buyers in control, once a viewer finds even a minor flaw during the home inspection, calculates that the monthly payment exceeds expectations, or simply changes their mind because market sentiment has weakened, they will decisively walk away, further entrenching the characteristics of a buyer's market.

Home Prices Stop Rising

The cooling in sales is also transmitting to prices. Redfin data shows the national median home sale price is $394,000, up just 1.3% year over year, the smallest gain since February. The spread of price cuts is especially notable: in September, 60.5% of sold homes closed below their initial list price, a metric that has held around the 60% level for 18 consecutive months. At the same time, nearly one-fifth of active listings have seen proactive price reductions, with the wave of cuts expanding across 43 of the top 50 metropolitan areas.

Amy Wang, an agent at New York real estate brokerage Serhant, told Yicai that prices in Manhattan's core districts have actually been moving sideways near a relative bottom for years, currently about 20% below their 2019 peak, leaving little room for a further cliff-edge decline. She said most Manhattan landlords have shifted to long-term holding thanks to strong local rental demand, and among the owners she represents, only one has chosen to cut prices in the past three years, but rising mortgage rates have undoubtedly made winter transactions in core urban areas even harder.

Daniel Ho also analyzed that most landlords currently prefer converting sales into rentals rather than offering deep discounts, which provides bottom support for nominal home prices. But if high inflation and tight conditions persist over the long term, real home prices adjusted for inflation are already on a downward path. He expects nominal home prices nationwide to mostly move sideways with slight adjustments over the next 6 to 12 months, and only as the wait-and-see period lengthens will pent-up inventory gradually enter the market and divert demand.

According to a calculation by Capital Economics, US home sales in 2026 are set to hit their lowest level since 2011. Wall Street analyst Meredith Whitney, who accurately predicted the last US subprime crisis, warned that although home transaction volumes have plunged in recent years, that is not enough to push down mortgage rates or home prices. This means the deep freeze in housing transactions will last at least until next year, she said, adding that 2027 home sales will be "at least as bad" as 2026.

Housing Cost Spillover and Polarization

With US midterm elections approaching, the latest national economic survey shows that among people aged 18 to 34, the heavy burden of housing costs has surpassed inflation, daily necessities, and other traditional issues to become the top political concern. The share of median income spent on rent or home purchases is also rising across the board.

According to US real estate analytics and data services firm Cotality, the share of median income needed for renting and buying a home nationwide has risen from 24% and 21% in 2019 to 26% and 28% now, with even higher ratios in core metropolitan areas along the East and West Coasts.

Pressure in the rental market is also approaching its limit. Data from rental platform Apartment List shows that more than half of US renters face severe rent burdens, and over 22 million households have had to cut back on other basic living expenses to pay rent. Rising everyday prices and uncertainty in the job market have further worsened the homebuying ability of working-class households.

In the interview, Leo Lee noted that soaring living costs combined with flat wage growth are forcing ordinary working-class groups to fully suspend plans to buy or trade up. Amid anxiety that artificial intelligence is reshaping the employment landscape, salaried workers are generally in a defensive, risk-averse state, lacking both the willingness and the ability to take on leverage.

Leo Lee told Yicai: "Prices in the US are soaring right now. When I first came to the US more than a decade ago, $30 or $40 at the supermarket could fill a cart with daily necessities, but now it takes $300 or $400. This surge in living costs, projected onto the housing market, most directly shows up in working-class people being afraid to buy and unwilling to trade up. Add the potential shock of AI replacing human labor, and salaried workers generally feel a strong sense of crisis."

Yet wealthy groups with ample assets still show astonishing liquidity. Leo Lee revealed that in the high-end housing market above $3 million, some properties can even still see all-cash bidding and closing. Most of these buyers belong to the Baby Boomer generation, who have accumulated decades of gains from the stock market and 401(k) retirement funds. Because they do not need to rely on bank mortgage loans at all, they are almost immune to the financial squeeze caused by rate changes.