The U.S. housing market started 2025 on a rough note, as existing home sales fell to their lowest level on record.
According to the National Association of Realtors (NAR), pending home sales dropped by 4.6% from December, marking a 5.2% decline year-over-year. This sharp decrease highlights ongoing affordability struggles, with high mortgage rates and rising home prices keeping many potential buyers on the sidelines.
Why Home Sales Plunged in January
While January’s cold weather may have played a role in slowing buyer activity, economists point to affordability as the primary issue.
1. Mortgage Rates Remained High
Although mortgage rates eased slightly in February, they remained above 7% throughout January, according to Mortgage News Daily. As a result:
Higher rates reduced affordability, making it more expensive for buyers to finance a home.
Many buyers postponed purchases, hoping for better conditions later in the year.
2. Home Prices Remained Elevated
Even though some local markets saw price cuts, national home prices remained higher than last year. This created additional affordability challenges, especially for first-time buyers.
Buyers faced a double burden—high home prices combined with high borrowing costs.
Not sure how today’s rates impact your budget? Use our Loan Affordability Calculator to estimate your buying power.
Regional Housing Market Trends
The decline in home sales wasn’t uniform across the country. Some regions fared better than others:
Northeast: Saw a small increase in sales month-over-month.
West & Midwest: Experienced declining sales.
South: Saw the largest drop, despite historically strong demand.
Why does this matter? Some regions may see a faster recovery, while others could face continued price stagnation or declines.
Rising Inventory—But Not Everywhere
Despite the drop in home sales, inventory rose by 17% compared to last year—marking the 14th straight month of annual growth.
However, this inventory increase isn’t evenly distributed:
- Some high-demand areas still have a housing shortage.
- Other markets are seeing a buildup of unsold homes.
Buyers in certain regions may have more options, while others still face limited supply and competitive bidding wars.
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What This Means for Homebuyers
While home sales dropped, the market is still challenging for buyers. Here’s what to expect:
If You’re Buying a Home:
- High mortgage rates will continue impacting affordability.
- Some markets may offer price reductions or seller incentives.
- Inventory is rising, but availability varies by location.
Compare mortgage options with our Loan Compass Tool.
If You’re a Homeowner:
- If rates drop, refinancing could help lower your monthly payment.
- Selling may take longer in certain markets with higher inventory.
Check refinancing options with our Refinance Calculator.
The Bottom Line
January home sales hit a record low, driven by high mortgage rates and ongoing affordability challenges.
- Pending home sales dropped 4.6% from December and 5.2% year-over-year.
- High mortgage rates above 7% kept many buyers out of the market.
- Home prices remained high, limiting affordability.
- Inventory is rising but isn’t evenly distributed across regions.
What’s next? If rates decline, we may see a rebound in home sales. Until then, buyers must navigate high borrowing costs, and sellers may need to adjust pricing strategies.
🔗 Stay ahead of market trends with our Loan Compass Tool and Loan Affordability Calculator.
