Existing-home sales stumbled in January, falling 4.9 percent from December to an annualized pace of 4.08 million, a sharper drop than the 2.6 percent decline economists had expected. The start of 2025 continues a prolonged period of weakness in home sales, with affordability challenges keeping many buyers on the sidelines.
Despite the monthly decline, sales remained 2.0 percent higher year-over-year, marking the fourth consecutive month of annual increases. Yet, that improvement has done little to ease affordability concerns. The median price of an existing home climbed 4.8 percent to $396,900, the highest ever recorded for a January.
Affordability Crisis Persists
Housing affordability remains a major obstacle. The 30-year fixed mortgage rate averaged 6.85 percent as of mid-February, little changed from a year ago and still well above pre-pandemic levels. The combination of high borrowing costs and rising prices continues to price out many first-time buyers, who made up only 28 percent of purchases in January, the lowest level since tracking began.
One of the starkest divides in the housing market is between high-end and entry-level sales. Homes priced above $1 million saw a 27 percent increase in sales over the past year, while purchases of homes under $250,000 declined. Cash buyers, who remain less sensitive to mortgage rates, made up 29 percent of transactions, while investors and second-home buyers accounted for 17 percent.
A Buyer’s Market? Not Quite.
Inventory is increasing, but that has not yet translated into stronger demand. The number of homes for sale rose 16.8 percent from a year ago, reaching 1.18 million units—a 3.5-month supply at the current sales pace. Homes also spent more time on the market, averaging 41 days, the longest since early 2020.
Despite this, prices remain resilient, particularly in high-demand coastal markets where bidding wars persist. Nationally, 15 percent of homes sold above list price, and homes received an average of 2.6 offers, up from 2.1 in December.
One emerging sign of distress: foreclosure starts jumped 30 percent in January. While distressed sales remained low at 3 percent, the increase in foreclosures comes as pandemic-era protections continue to expire. The impact remains limited for now, but it is a trend to watch if affordability pressures persist.
Fed Policy and the Road Ahead
With both inflation and inflation expectations rising, the Federal Reserve is unlikely to cut interest rates before June at the earliest. That reality will keep mortgage rates elevated, sustaining affordability challenges for buyers and sellers alike.
Realtors are hopeful for a stronger spring market, but if rates stay high, the housing sector may be in for another year of constrained activity—with buyers waiting for relief that remains elusive.
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