The U.S. housing market closed 2025 on a stronger footing than many analysts expected, as existing home sales surged in December while home price growth continued to cool. New data shows that improving mortgage rate stability and easing price pressure helped unlock pent-up demand, offering cautious optimism as the market moves into 2026.
According to the National Association of Realtors, sales of previously owned homes rose to a seasonally adjusted annual rate of 4.35 million units in December. That marked a 5.1% increase from November and significantly outperformed forecasts that had anticipated a gain closer to 2%. Compared with December a year earlier, sales were up 1.4%, making it one of the strongest monthly performances in nearly three years after seasonal adjustment.
A Flat Year Ends With Momentum
Despite the strong December finish, the broader picture for 2025 remains one of resilience rather than recovery. Total existing home sales for the year came in at 4.06 million units, essentially unchanged from 2024. High home prices, limited supply, and elevated mortgage rates continued to suppress activity for much of the year.
However, December’s performance suggests a turning point. Sales increased month over month in all four major regions of the country. On an annual basis, sales were higher in the Northeast and Midwest, while the South and West recorded year-over-year declines, reflecting persistent affordability challenges in higher-priced markets.
Because existing home sales are recorded at closing, December’s numbers largely reflect contracts signed in October and November. During that period, mortgage rates were relatively steady, with the average 30-year fixed-rate loan hovering between 6.2% and 6.3%. While still well above pre-pandemic levels, those rates were lower than the nearly 7% levels seen earlier in 2025, helping bring some buyers back into the market.
Inventory Tightens as Sales Rise
Inventory was one of the most striking aspects of the December report. At the end of the month, there were just 1.18 million homes available for sale nationwide. That figure was down 18% from November, although it was 3.5% higher than a year earlier.
With sales accelerating and new listings remaining scarce, housing supply fell to just 3.3 months at the current sales pace. This level is widely considered lean and continues to favor sellers. A balanced market is typically associated with around six months of supply.
Many homeowners remain hesitant to list their properties. Those who locked in ultra-low mortgage rates in 2020 and 2021 are reluctant to trade them for much higher rates, while others are uncertain about finding an affordable replacement home. This “lock-in effect” continues to constrain supply and limit transaction volume.
Home Price Growth Continues to Cool
Tight inventory has kept prices from falling, but the pace of appreciation is clearly slowing. The median price of an existing home sold in December was $405,400, up just 0.4% from a year earlier. That marked the 30th consecutive month of annual price gains, but the increase was significantly smaller than November’s 1.2% year-over-year rise.
Slower price growth is a key development for affordability. While home prices remain historically high, easing appreciation reduces pressure on buyers and could help stabilize demand if mortgage rates continue to trend lower in 2026.
Signs of Improvement Heading Into 2026
Lawrence Yun, chief economist at the National Association of Realtors, described 2025 as another difficult year for buyers but acknowledged that conditions began to improve in the final quarter.
He pointed to lower mortgage rates and slower home price growth as key factors behind the December rebound. Yun also expects more inventory to come onto the market as the new year progresses, particularly in late winter and early spring, when listing activity typically increases.
“With fewer sellers feeling eager to move, homeowners are taking their time deciding when to list or delist their homes,” Yun said, adding that more supply is likely to emerge beginning in February.
What This Means for Buyers and Sellers
For buyers, the December data offers cautious encouragement. While affordability challenges remain, the combination of easing price growth and more stable mortgage rates could create better opportunities in 2026, especially if inventory improves modestly.
For sellers, tight supply continues to provide leverage, but the days of rapid price gains appear to be fading. Pricing homes realistically and understanding local market conditions will be increasingly important as buyers become more selective.
Outlook for the U.S. Housing Market
The strong finish to 2025 does not signal a full recovery in the housing market, but it does suggest that the worst of the slowdown may be over. Demand remains highly sensitive to mortgage rate movements, and supply constraints are unlikely to disappear quickly. Still, the December surge in existing home sales points to a market that is gradually stabilizing.
As 2026 begins, buyers, sellers, and investors will be watching mortgage rates, inventory trends, and price movements closely. If borrowing costs continue to ease and more homes come to market, the U.S. housing sector could see a slow but meaningful improvement after several challenging years.
