Implications: Existing home sales closed out 2025 on a healthy note, rising for a fourth consecutive month and hitting the fastest pace since 2023. That said, the current sales rate of 4.350 million remains near the low since the aftermath of the Great Financial Crisis, and well below the roughly 5.250 million annual pace pre-COVID (let alone the 6.500 million pace during COVID).  The good news is that affordability has been improving in several notable ways. First, 30-year mortgage rates have been trending lower since May and now sit around 6.2%, near the lowest rate since 2022. Buyers also have reasons for further optimism on financing costs. The Federal Reserve is continuing to cut rates, the Trump Administration will soon appoint a new Fed chair who is likely to be even more accommodative, and there is talk of Fannie and Freddie purchasing more mortgages as well. Meanwhile, the median price of an existing home is up only 0.4% versus a year ago. Aggregate wage growth (hourly earnings plus hours worked) has also begun to consistently outpace median home price gains over the past year for the first time since 2023, which improves affordability. The biggest headwind continues to be inventories, where growth continues although at a slower pace than earlier this year. This has led to the months’ supply of homes (how long it would take to sell existing inventory at the current very slow sales pace) falling to 3.3 in December, well below the benchmark of 5.0 that the National Association of Realtors uses to denote a normal market.  Many existing homeowners also remain reluctant to sell due to a “mortgage lock-in” phenomenon, after buying or refinancing at much lower rates before 2022.  This means potential buyers will have to continue to deal with limited options.  Existing home sales also face significant competition from new homes, where in many cases developers are buying down mortgage rates to compete and move inventory. Despite these cross currents, underlying fundamentals have improved recently, which should contribute to a modest upward trend in sales in 2026.

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