The summer increase in mortgage rates wiped away more of the purchase market’s fragile spring momentum in July, pushing pending home sales to their lowest level since January.
The National Association of Realtors’ Pending Home Sales Index declined 2.3% from June to 71.2 and fell 2.2% from July 2025, according to the association’s latest report. Contract signings declined month over month in all four regions, suggesting the pullback was not confined to a handful of expensive or supply-constrained markets.
“The highest mortgage rates of the year hit right in the middle of summer, and that’s pulling back contract signings,” NAR Chief Economist Lawrence Yun said. “Home prices are at record highs so houses for sale are sitting on the market longer, and fewer buyers are bidding above the asking price than a year ago, though there are large local market variations.”
The average 30-year fixed mortgage rate reached 6.66% during the final week of July, up from 6.49% at the end of June, according to Freddie Mac. NAR calculated that the rate averaged 6.54% for the month.
The resulting decline reinforces a pattern that has become increasingly clear in 2026: Purchase demand returns when rates provide even modest relief, but that demand remains vulnerable to another increase in borrowing costs.
Earlier this spring, pending sales reached their highest level in nearly four years after mortgage rates briefly declined. By late July, however, higher rates were once again thinning purchase pipelines, even while price reductions and longer marketing times gave remaining buyers more negotiating power.
Employment Growth Has Not Become Housing Demand
The deeper concern in NAR’s report is the widening disconnect between the labor market and homebuying activity.
Pending contracts are now 30% below their 2019 level, while payroll employment is 5% higher, according to Yun. That means a substantially larger workforce is producing considerably fewer home-purchase contracts than it did before the pandemic.
Yun characterized that disparity as evidence of “sizable pent-up demand” that could emerge in future years if mortgage rates stabilize or decline, housing supply expands, and affordability improves.
“Job gains should bring more buyers into the market, especially if mortgage rates stabilize or decline, though that impact takes time to show up,” Yun said.
The comparison, however, also illustrates the limits of employment growth alone. Having a job does not necessarily make a household mortgage-ready when home prices remain near record highs and financing costs have reduced purchasing power.
Nor does the 30% gap guarantee that all of the missing activity will eventually become home sales. Converting that potential demand into funded loans will require a workable combination of rates, prices, incomes, insurance costs, property taxes, and available inventory.
For loan originators, that makes NAR’s longer-term demand thesis less useful than the immediate signal: A relatively modest rate increase was enough to weaken contract activity across the entire country.
West Records Sharpest Decline
The West experienced the largest pullback. Pending sales declined 4.7% from June and 7.1% from a year earlier.
In the South, contract signings fell 2.2% monthly and 3% annually. The Northeast recorded a 2% monthly decline and a 0.2% annual decrease.
The Midwest held up better than the other regions, with pending sales down just 0.7% from June and up 1.7% from last year. It was the only region to post an annual increase, offering another indication that relatively affordable markets retain an advantage when borrowing costs rise.
Local results were even more varied. Among the 50 largest metropolitan areas, Virginia Beach-Chesapeake-Norfolk recorded the strongest annual increase in pending sales at 17.2%, according to Realtor.com data included in NAR’s report.
San Antonio followed with an 11.8% increase, while Cincinnati gained 6.2% and Pittsburgh rose 3.7%. Miami, Austin, Buffalo, St. Louis, Jacksonville, and Columbus also posted annual increases.
The market may contain substantial deferred demand, but July showed how little tolerance many prospective buyers have for higher monthly payments. Until affordability improves materially, the purchase pipeline is likely to remain highly responsive to every meaningful movement in mortgage rates.
