Zillow data shows August closings fell year over year as borrowing costs above 6.5% sidelined buyers and pushed demand toward rentals
Home sales cooled in August as mortgage rates climbed to their highest level in a year, reversing a surge that had briefly lifted the market in July, according to Zillow's August Market Report.
The report shows mortgage rates holding above 6.5% kept many buyers on the sidelines, with home sales slipping 0.6% year over year.
The reversal is striking. July had posted a 6% annual gain, and newly pending listings, a forward-looking measure of demand, fell 2.6% from a year ago.
The typical US home value stood at $369,678, up 1.3% annually, while the monthly mortgage payment on that home reached $1,897, 2% higher than last year.
"The for-sale housing market took a step back in August, and mortgage rates above 6.5% are the primary culprit," said Mischa Fisher, chief economist at Zillow.
"The combination of weak sales and even weaker pending sales points to a soft close to 2026."
Pending signals point to further weakness
The leading indicators heading into autumn offer little comfort. Newly pending listings fell 2.6% year over year in August, a rapid deceleration from June's 7.5% annual gain.
Because August's closed sales largely reflect contracts signed in July, when elevated rates were already discouraging buyers, September's figures are likely to soften further.
US mortgage rates are inching toward 7%. The 30-year fixed-rate mortgage rose to 6.71% for the week ending September 3, according to Freddie Mac's Primary Mortgage Market Survey (PMMS) — its highest level since July 31, 2025, when it stood at 6.72%.
Federal Reserve Governor Christopher Waller said he is inclined to support keeping interest rates unchanged at the September 15–16 Federal Open Market Committee (FOMC) meeting, provided that upcoming inflation data continue showing signs of cooling.https://t.co/oaDCJrI575
— Mortgage Professional America Magazine (@MPAMagazineUS) September 7, 2026
Lawrence Yun, chief economist at the National Association of Realtors (NAR) in Washington, DC, framed the challenge plainly when pending home sales posted their steepest monthly drop of 2026: "The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers."
Inventory edged up, with 1.41 million homes for sale nationally — 3% above a year ago — and 26.3% of listings carrying a price cut, up half a percentage point from last year.
Renters absorb what buyers leave behind
The rental market is filling the gap. The typical national rent rose to $1,948, up 2.5% year over year, nearly double the 1.3% annual rate of home value growth. That acceleration is reaccelerating, up from 2.3% the prior month.
High mortgage rates are set to keep the US housing market subdued through 2026, with the Mortgage Bankers Association (MBA) projecting the 30-year fixed rate in the 6.1%–6.3% range for the remainder of the year.
Fisher's prognosis for the market is straightforward. "Until rates ease," he said, "many households will likely stay on the sidelines a little longer, as renting is still the more affordable substitute."
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