Strong July Home Sales May Give Way to a Slower Fall Market

The residential real estate market delivered both encouraging and cautionary signals in July. Completed home sales increased, but rising mortgage rates and declining pending sales suggest the market could lose momentum during the second half of 2026.

According to Zillow’s July Market Report, completed home sales rose approximately 7% from a year earlier—the strongest annual increase recorded so far this year. Many of those buyers likely entered the market when mortgage rates briefly declined in June, demonstrating how quickly demand can respond to improving borrowing conditions.

However, the outlook changed as mortgage rates began climbing again. New-home purchase contracts stalled, while pending sales—transactions under contract but not yet closed—declined significantly. Zillow estimated that pending sales fell 7.7% from June to July. Redfin also reported weakening homebuying demand in early August.

Although July was a strong month for completed sales, economists caution that it may represent the high point for the remainder of the year.

Mortgage Rates Continue to Challenge Buyers

The average rate for a 30-year fixed mortgage reached 6.69%, according to Freddie Mac, up slightly from 6.66% the previous week. Rates were also higher than during the same period last year—the first time that has occurred in approximately 44 weeks.

Even small rate increases can affect a buyer’s monthly payment and purchasing power. The continued movement near the upper end of the past year’s mortgage-rate range may cause some buyers to pause, reduce their budgets, or wait for more favorable conditions.

Future rate movement will depend heavily on employment, inflation, and other economic reports. Recent jobless-claims data continues to indicate a relatively healthy labor market, which may make an immediate and substantial decline in mortgage rates less likely.

Mortgage Applications Decline

Higher interest rates are also affecting mortgage activity. The Mortgage Bankers Association reported that total mortgage applications declined 2.9% during the final week of July.

Applications for both home purchases and refinances decreased and were running behind last year’s pace. This slowdown provides another indication that higher borrowing costs are limiting demand, even among buyers who remain interested in purchasing a home.

More Homes May Become Available

The cooling pace of sales could create one meaningful benefit for buyers: additional inventory.

Zillow estimated that active housing inventory increased 1.5% compared with July 2025 and 0.9% compared with June. New listings were 3.1% higher than a year earlier, although they declined 4.2% from the previous month.

If inventory continues to grow, buyers may have more homes to compare, more time to make decisions, and better opportunities to negotiate. Conditions will vary considerably by location, price range, property type, and the home's condition.

What This Means for Buyers and Sellers

For buyers, a slower market may offer more choices and less competition, but waiting for substantially lower mortgage rates carries risks. A home’s price, condition, insurance costs, and long-term suitability can be just as important as the interest rate.

For sellers, the changing market makes accurate pricing and thoughtful preparation especially important. Buyers facing higher monthly payments are typically more selective and less willing to overlook needed repairs, poor presentation, or an unrealistic asking price.

July’s strong closings show that buyers are still purchasing homes. However, declining contracts and higher mortgage rates suggest that the market is becoming more cautious. Homes that are properly prepared, competitively priced, and effectively marketed will be best positioned to attract serious buyers as we move toward the fall.