Home sales fell 0.6% from a year earlier and dropped 10.7% from July.
Pending sales declined 2.6%, suggesting the slowdown could continue through the fall.
Buyers have more homes to choose from, but mortgage rates above 6.5% continue to limit affordability.
The housing market lost momentum in August as elevated mortgage rates – along with still-rising home prices – discouraged buyers and increased the likelihood of a slow finish to 2026.
Zillow’s August Housing Market Report found that 339,927 homes were sold during the month, down 0.6% from August 2025 and 10.7% from July. While some month-to-month decline is normal as the summer buying season ends, the drop in pending sales suggests more than a seasonal slowdown.
Newly pending listings, which measure homes going under contract and can indicate the direction of future closed sales, fell 2.6% from a year earlier. That was a significant reversal from June, when pending sales were running 7.5% above the previous year.
“The for-sale housing market took a step back in August, and mortgage rates above 6.5% are the primary culprit,” Zillow Chief Economist Mischa Fisher said. “The combination of weak sales and even weaker pending sales points to a soft close to 2026.”
Affordability remains the main obstacle
The typical U.S. home was valued at $369,678 in August, down 0.1% from July but still 1.3% higher than a year earlier.
Zillow estimated that the monthly mortgage payment on a typical home was $1,897, assuming a 20% down payment and including taxes, insurance and maintenance. That was 2% more than a year ago.
The figures show why modest changes in home prices have not produced much relief for buyers. Even if prices level off or decline slightly, mortgage rates can keep monthly payments beyond the reach of many households.
If rates remain above 6.5%, sales will likely stay subdued. A meaningful decline in borrowing costs, however, could quickly bring some buyers back because many have delayed purchases rather than abandoned plans to own a home.
Buyers gain some negotiating power
There were 1.41 million homes listed for sale nationwide in August, 3% more than a year earlier. The increase gives buyers more time and greater selection than they had during the inventory shortages of recent years.
Homes took a median of 27 days to go pending, two days longer than in July. More than one-quarter of listings — 26.3% — had received a price cut.
Those numbers suggest the market is gradually moving toward buyers, although conditions vary widely by location. Buyers who can afford current mortgage payments may encounter fewer bidding wars and have more leverage to request price reductions, repairs or help with closing costs.
Sellers may need to price homes more realistically from the beginning. The decline in pending sales means overpriced properties could remain on the market longer as the number of motivated buyers shrinks.
More households may continue renting
The slowdown in home purchases is also affecting the rental market. The typical U.S. rent rose 2.5% from a year earlier to $1,948, nearly twice the annual growth rate for home values.
Zillow said the acceleration in rents suggests rental properties are absorbing some of the demand from people priced out of homeownership. However, tenants may still have room to negotiate: 39.2% of rental listings offered a concession, such as a free month of rent or reduced move-in costs.
Taken together, Zillow’s August report points to a divided market. Buyers have more choices and negotiating power, but affordability remains poor. Sellers face more pressure to adjust prices, while renters may encounter rising monthly costs even as landlords continue offering incentives.