Existing home sales stalled last month, but demand is lurking 

Existing home sales hit the brakes in January, but some of the underlying data suggests there is still pent-up demand in the market.

Between December and January, the number of existing home sales dropped 4.9%, according to the National Association of Realtors. Inventory also grew during that time to 3.5 months of supply, up from 3 months a year ago, NAR said.

Despite the monthly decline, existing home sales were off to a better start in 2025 compared to 2024, rising 2% year-over-year in January — even as the home affordability index fell to 64, the lowest level on record, according to the Federal Reserve Bank of Atlanta. 

It's worth noting that in December, existing home sales saw an even larger year-over-year bump — 9.3% — but that still wasn't enough to push annual sales above 2023 levels.

Buyers are adapting, but spring may be sleepy: Although affordability is strained, the year-over-year increase in sales in January "suggests that a fair number of buyers have adapted to the higher mortgage rates in today's market environment," said Danielle Hale, chief economist at Realtor.com.

While some buyers have been dipping their toes into the market, a significant uptick in sales is unlikely as long as mortgage rates remain elevated, said Odeta Kushi, deputy chief economist at First American. Sluggish pending sales numbers suggest that existing home sales will continue to struggle in the coming two months — which means the start of the spring homebuying season could come in more like a lamb than a lion.

"The bottom line — we're likely to see a modest, seasonal increase in home-buying demand, but it will still be constrained by affordability issues and the persistence of the rate lock-in effect compared to pre-pandemic spring markets," Kushi said.

An inventory-related boost? Rising levels of supply could help spur sales, however: "Inventory is expected to continue trending higher, potentially giving buyers more choices and negotiating power," Kushi said.

While some of that inventory is stale, new listings are up by more than 4% compared to this time last year, according to Redfin. 

Home prices push higher: Along with high borrowing rates, rising home prices continue to hurt overall affordability. NAR estimates the median existing home sales price was $396,900 in January, down slightly from $404,400 in December, but up 4.8% from a year ago and the 19th consecutive month of year-over-year price increases.

There are signs that price growth has slowed, however. Altos Research estimates overall home prices grew 2% year-over-year, a much slower pace than in recent months. And Redfin reports that the typical home is now selling at 2% lower than the asking price, suggesting that buyers have more negotiating power.