High mortgage rates stall US housing market as buyers turn to rentals

The latest data from Zillow reveals that the cooling trend is deepening, as newly pending listings—a key indicator of future closings—dropped 2.6% compared to the same period last year. This decline follows a significant deceleration from June’s 7.5% annual gain, signaling that the market may remain sluggish through the end of 2026. While inventory has seen a modest rise to 1.41 million homes, the lack of buyer urgency is forcing sellers to adjust, with 26.3% of listings now featuring price cuts.

Mischa Fisher, chief economist at Zillow, identifies elevated borrowing costs as the primary driver of this slowdown. With the typical monthly mortgage payment now 2% higher than last year, many households are finding the rental market a more viable, albeit increasingly expensive, alternative. Nationwide, rents have climbed 2.5% to a typical price of $1,948, a reacceleration that suggests the rental sector is effectively absorbing demand sidelined by the high cost of ownership.