The US housing market continues its slump, with affordability remaining a major obstacle for potential buyers. High prices and mortgage rates, coupled with low inventory, create a challenging environment for homebuyers.
The housing market 's slump continues into its third year, with affordability remaining a significant barrier for prospective buyers. High asking prices and elevated mortgage rates are limiting options or pricing individuals out of the market altogether. Homes are selling at their slowest pace and staying on the market for the longest periods since the pandemic began, as the market struggles to regain stability.
This further challenges a housing market already experiencing a prolonged downturn and its slowest sales year in nearly three decades. Existing home sales declined by 0.7% overall last year, reaching 4.06 million, the lowest figure since 1995. This trend has persisted in the early weeks of 2025, with pending home sales (when a seller accepts an offer) dropping 9.4% for the four-week period ending January 28, according to Redfin. Pending home sales also saw a year-over-year decline of 9.4%, the most significant since September 2023. The typical home that went under contract spent 54 days on the market before an offer was accepted, the longest duration since March 2020 and a full week longer than at the same time in 2023. During the pandemic housing boom, homes typically sold within 35 days.Despite the extended time spent on the market, homeowners have maintained their asking prices due to the limited supply available for purchase. With fewer listings, competition for offers diminishes, allowing sellers to be more patient and seek the maximum value for their property. Only 1.15 million homes were on the market at the end of December, according to NAR. While this represents a double-digit increase from the previous year, it still falls significantly short of the historical average of nearly 2 million. A balanced housing market is typically characterized by a five- to six-month supply on the market, a level that hasn't been reached since 2012. “When the market isn’t competitive, some buyers think they should wait for costs to go down,” Jordan Hammond, a Redfin agent in Raleigh, N.C., stated in a release. “Now it’s pretty clear that sellers aren’t slashing asking prices and mortgage rates aren’t plummeting, so mindsets are shifting. People are starting to believe that if they want or need to move, and they can afford to, they should do it.”Whether buyers can afford to enter the market remains the primary obstacle to any recovery following two sluggish years. Mortgage rates have shown an upward trend for over two years, adding hundreds of dollars to monthly payments compared to a few years ago when rates were below 5%. “With no immediate rate cuts on the horizon, mortgage rates are likely to stay steady in the near term,' said Emanuel Santa-Donato, SVP and chief market analyst at Tomo Mortgage. 'The best move now is to shop aggressively for the best mortgage rate rather than holding out savings in the form of a rate reduction.” The high-rate environment also hinders homebuilders' ability to increase supply with newly built homes, making it more challenging to attract buyers and ensure profitability for projects. Builders are still adjusting to the impact of inflation, which has driven up the costs of supplies and labor. The limited inventory of existing homes on the market has provided builders with a modest boost heading into 2025, with new home sales increasing by 3.6% in December, according to federal data. The pace of new home sales grew by 6.7% compared to a year earlier. “Builders are cautiously optimistic about the building market for 2025 given a post-election policy reset that seeks to eliminate unnecessary regulations,” said Carl Harris, chairman of the National Association of Home Builders. Despite the potential for growth in new home construction, affordability issues are likely to persist. High rates increase monthly payments, and new homes remain expensive to purchase, with the median sales price in December reaching $427,000. President Donald Trump campaigned on reducing costs for Americans and has signed an executive order directing government agencies to find ways to lower housing costs and increase supply. He has stated his intention to remove regulations and standards that impede builders, though his plan to address the affordability crisis remains undisclosed
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