The American housing market endured its worst year in three decades in 2025, with sales slumping to a 30-year low and extending a painful downturn into a fourth consecutive year. According to the National Association of Realtors (NAR), the market recorded just 4.06 million home sales across the year, a slight dip from 2024's already dismal figures.
A Perfect Storm of Unaffordability
The prolonged crisis has been driven by a toxic combination of factors. Record-high home prices and persistently elevated mortgage rates have created a significant affordability barrier, locking millions of prospective buyers out of the market. The median national home price for 2025 rose 1.7% to $414,400. This slump traces its roots to 2022, when mortgage rates began their sharp ascent from pandemic-era lows.
Compounding the issue is a chronic shortage of available homes, a problem stemming from more than a decade of below-average construction. Lawrence Yun, NAR's chief economist, summarised the year, stating: '2025 was another tough year for homebuyers, marked by record-high home prices and historically low home sales.' Sales have languished near the 4 million mark since 2023, far below the historical norm of around 5.2 million annually.
Glimmers of Hope in Late 2025
Despite the grim annual picture, the final months of 2025 offered a flicker of optimism. December emerged as a particular bright spot, with falling mortgage rates pushing existing home sales up to a 4.35 million annual pace. This represented a 5.1 percent surge from November and was the strongest monthly showing in nearly three years.
This shift coincided with policy moves from the Trump administration, which floated proposals aimed at easing the affordability crisis. Following an announcement that the government had ordered Freddie Mac and Fannie Mae to buy mortgage bonds, rates plunged. The average rate on a 30-year loan ended the year at 6.15 percent—the lowest level since October 2024. However, many economists believe the administration's wider proposals, including a 50-year mortgage and a ban on large investors buying houses, will have only a limited impact.
Inventory and Affordability Remain Key Hurdles
The path to a sustained recovery remains fraught. Affordability is a severe challenge, especially for first-time buyers without existing home equity. Uncertainty over the economy and job market also continues to deter potential purchasers. The sales slowdown has led to a growing inventory of unsold homes, which stood at 1.18 million at the end of December, a 3.5% annual increase. Yet, this is still well short of the pre-pandemic norm of roughly 2 million homes for sale.
Looking ahead, forecasts are mixed. Lawrence Yun projects a significant 14 percent jump in existing home sales for 2026, while other economists are more cautious, predicting increases of between 1.7 and 9 percent. Most expect mortgage rates to ease further but remain above 6 percent. Yun concludes: 'There's quite sizeable pent-up demand, and the only way to get that pent-up demand back to the market is we need more inventory and we need better affordability.' The spring buying season will be a critical test of whether the December momentum can be sustained.
