One measure of newly pending home sales logged its greatest drop since 2023 following September's rise in mortgage rates, new data show.

For investors, it's a taste of the housing market to come should mortgage rates remain high and rising.

"It tells us that we're headed to a pretty quiet October," says Zillow chief economist Mischa Fisher.

The number of homes that newly went under contact in September dropped 8.5% from the year prior to 227,569, Zillow said Tuesday. The slump marks the sharpest yearly decrease since September 2023, according to historic Zillow data.

It's one of the first indicators of the slowdown to come in home sales. There's typically a significant lag between conditions in the housing market and the time a sale closes. That makes pending home sales, which measure when a house goes under contract, a more timely indicator of the consequences of factors such as mortgage rates and prices.

Of the 50 large metropolitan areas for which Zillow provided data, pending sales dropped the most in Louisville, Cleveland, and Charlotte, N.C., with double-digit declines from the year prior in each. Only three cities' measures weren't negative: pending sales in Hartford, Conn., were flat, up 0.8% in Milwaukee, and 6% higher than one year ago in Austin, Texas.

Blame a rapid change in the cost of a mortgage. Mortgage rates measured by Freddie Mac rose to 7.28% last week, up more than 0.6 percentage point from 6.66% at the end of August.

Both the level of mortgage rates and their rapid rise play a role. If rates remained at recent levels, the dulling impact of higher rates on housing demand would remain -- but some of the shock of the rapid move higher would wear off, Fisher says.

"If they were to stay roughly where they are, I do expect the impact would subside a little over time, because you have income continuing to grow and home values remaining flat," he says. "Affordability slowly improves, even if rates remain constant."

Home sales this year are still primed to squeak past the roughly 30-year low they have hovered at for the past three years, says Fisher -- but just barely. The economist expects sales this year to log a 1% gain over last year, after previously expecting about a 5% increase.

"I would just characterizes this as the fourth year of just bouncing along the bottom," he says.