Home prices are barely rising, inventory is growing, and buyers have more negotiating power. Yet the cost of financing a home is moving in the opposite direction, leaving mortgage lenders facing an increasingly difficult purchase market.
The typical monthly mortgage payment rose 12.8% year over year in October, even as home values increased just 0.7%, according to Zillow's October Market Report.
The affordability squeeze is showing up in purchase activity. Newly pending home listings fell 16.8% from a year earlier, their steepest annual decline since August 2023 and the slowest October since 2018.
The decline also represents a 9.1% drop from September, suggesting the slowdown accelerated as mortgage rates moved higher.
The figures point to continued pressure on purchase pipelines heading into the final weeks of 2026, even as buyers gain more leverage over sellers.
Higher Rates Erase the Benefit of Softer Prices
Zillow estimates that the monthly principal-and-interest payment on a typically valued U.S. home reached $2,004 in October, assuming a 20% down payment and excluding taxes and insurance.
That represents a 4.8% increase from September, the largest monthly jump in four years.
The increase came despite declining home values. Zillow's Home Value Index placed the typical U.S. home at $364,812, down 0.6% from September and up just 0.7% annually.
Mortgage rates were the primary driver of the higher payments. According to Freddie Mac data cited by Zillow, rates averaged 7.33% in October, compared with 6.86% in September.
The pressure extends to borrowers using government-backed financing. Zillow estimates that buyers putting 5% down with an FHA loan experienced an 11.8% annual increase in monthly mortgage payments.
Modest reductions in home prices are providing limited relief when financing costs are rising much faster.
Purchase Activity Weakens Ahead of Year-End
Zillow's preliminary estimate shows 304,105 existing homes sold in October, down 8.7% from a year earlier and 5.4% from September.
But the pending-listings figures offer a more immediate indication of market conditions. October's completed transactions largely reflect contracts negotiated in September, while newly pending listings capture more recent purchase activity.
That distinction suggests another difficult month for closings could be ahead.
Zillow Chief Economist Mischa Fisher expects November's contraction in sales activity to be larger than October's before the pace of the slowdown begins to ease in early 2027.
The weakness is consistent with other recent housing and mortgage data.
Redfin found that pending home sales fell 16.4% year over year during the four weeks ending Nov. 1, reaching their lowest level in the brokerage's weekly records dating to 2021.
The Mortgage Bankers Association also reported that purchase mortgage applications declined 2% during the week ending Oct. 30 and were 19% below their year-earlier level.
More Homes, Fewer Buyers
The slowdown is unfolding against a backdrop of improving housing inventory.
Zillow counted approximately 1.4 million homes for sale nationwide in October, up 3.4% from a year earlier and 0.4% from September.
New listings, however, declined 4.2% annually to 328,328, indicating that sellers are also pulling back.
Homes took a median of 31 days to go pending, two days longer than both September and October 2025.
The share of listings with a price cut stood at 26.5%, slightly below the 26.9% recorded a year earlier.
What It Means
Fewer pending contracts mean fewer potential transactions moving toward mortgage closing, while rising monthly payments can complicate qualification and affordability calculations for borrowers already shopping near their budget limits.
There are opportunities within the slowdown. Greater inventory and longer marketing times may give qualified buyers more room to negotiate purchase prices, seller-paid closing costs, or temporary rate buydowns, where permitted by loan program guidelines.
Those concessions can help originators structure more affordable transactions, although their effectiveness depends on borrower circumstances, program requirements, and the cost of financing.
The distinction between purchase prices and monthly payments is becoming particularly important. Buyers may be able to negotiate a lower price but still face higher carrying costs than they would have a year earlier.
Zillow expects the slowdown in sales activity to moderate heading into 2027, with the potential for stronger demand if mortgage rates decline.
