Existing home sales slide even as affordability improves 

January brought an ugly start to the year in terms of home sales. But market conditions are still shaping up to be decent for the spring homebuying season once the snow starts to melt.

Existing home sales plummet

Existing home sales dropped sharply last month, according to the National Association of Realtors. Sales were down 4.4% compared to January 2025 — when 30-year mortgage rates were hovering around 7% — and down 8.4% compared to one month earlier, bringing the seasonally adjusted annual rate well under 30-year lows to 3.91 million.

NAR's report also found that home prices continued ticking up. The median price for an existing home that sold in January was $396,800, up 0.9% year-over-year and the 31st consecutive month of year-over-year increases.

The weakness in sales activity, which NAR Chief Economist Lawrence Yun described as "disappointing," was widespread across the U.S. This suggests that weather was not the only factor weighing on sales, noted Realtor.com Chief Economist Danielle Hale. The year-over-year decline was most prominent in the West (down 7.9%), an area that wasn't hit as hard by winter weather.

But what happens in January doesn't necessarily provide an accurate preview of how the rest of the year will go. Pending sales in December are typically slow because of the holiday season — and the unusually cold weather experienced by much of the country this January may have slowed market activity even more, according to Lisa Sturtevant, chief economist at Bright MLS.

Improvements in affordability, inventory

Affordability has improved for buyers looking for an early spring purchase. NAR's Housing Affordability Index rose to 116.5 in January, up from 102 a year ago and hitting its highest point since March 2022. Yun attributed these improvements to the drop in mortgage rates and to wage growth outpacing home price increases.

Inventory remained tight at 1.22 million, though this was up by 3.4% year-over-year. The nation had a 3.7-month supply of unsold inventory in January compared to December's 3.5 months.

With improved inventory, lower mortgage rates and slower price growth, Sturtevant expects to see more home shoppers out early this spring.

Mortgage rates stay stable

The 30-year fixed-rate mortgage averaged 6.09% this week, according to Freddie Mac. Rates, which have changed little over the past few weeks, remain around the lowest levels of the past 17 months and held steady even with the release of a stronger-than-expected jobs report on Feb. 11, according to data from Mortgage News Daily.

However, the markets could be waiting to react until new inflation data is released on Feb. 13.

While inflation has remained above the Federal Reserve's target rate of 2%, it could drop closer to that benchmark if tariffs introduced last year by the Trump administration did indeed result in a temporary shock to prices, said Kara Ng, senior economist at Zillow.

"Policymakers have said that these goods-related price increases are largely one-time adjustments that should peak in the first quarter of 2026 and ease in the second half of the year. If upcoming inflation data challenge that narrative, mortgage rates could respond accordingly," Ng said.

For now, the current stability in mortgage rates is good for buyers and sellers who are ready to take action. But rates likely aren't low enough to entice the next wave of market activity, said Jiayi Xu, an economist at Realtor.com.

"A larger drop in rates will be needed to attract new buyers and sellers and truly reignite the housing market," Xu said.

Mortgage applications stall

Mortgage application activity was down 0.3% this week, while the seasonally adjusted purchase index was down 2%, according to the Mortgage Bankers Association (MBA). 

Borrowers are signaling that affordability concerns remain, said Joel Kan, MBA's vice president and deputy chief economist. Among those who are filling out applications, more are relying on FHA loans and adjustable-rate mortgages, Kan noted.

Days on market hits longest stretch since 2019

Pending sales data from Redfin indicates the market freeze is still in place, with the four-week average ending Feb. 8 down 5.1% year-over-year.

Meanwhile, homes are sitting on the market an average of 66 days — a week longer than a year ago and the longest span in about seven years.