Sales of existing homes last year hit the lowest level since 1995, according to data from the National Association of REALTORS. Yep, the annual pace of U.S. existing home sales hasn’t been this soft since Microsoft launched Windows 95.
The 29-year low in this key dataset is just one more piece of the housing affordability puzzle—even less supply means ever-higher prices. With 2024 existing home sales dropping to 4.06 million, the median sales price reached a record high of $407,500, according to the NAR.
Mortgage rates are a key piece of the puzzle. With about 80% of existing home loans carrying rates under 5% as of September 2024, according to data analytics firm CoreLogic, current homeowners don’t want to sell. Would you want to swap a sub-5% mortgage for a rate closer to 7%? That’s where the average 30-year mortgage rate has been stuck for months.
“We’re in that trap ourselves,” says California-based real estate agent Victor Currie. “Our mortgage is under 2%, and it’s hard to justify giving that up until we decide to downsize or leave California and use the built-up equity to buy the next property in cash.”
The U.S. housing puzzle: High prices, high rates, and not enough supply
If you’re hoping to buy in 2025, it’s not all bad news. Realtor.com’s national housing forecast for 2025 predicted that after sluggish gains early in the year, inventory growth would ramp up by springtime. The forecast cites a projected 11.7% increase in existing home inventory compared to 2024.
One might assume that more new housing would be the best way to deal with stagnant existing home inventory. But it won’t solve the housing market puzzle alone.
As explained by Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage, high prices on new inventory plus high mortgage rates keeping existing homeowners locked in are ruining the market for would-be buyers.
“It would be impossible to build enough to meet the immense need, and the very high costs of construction mean that a lot of the new product hitting the market is not affordable for your typical American family,” says DeFlorio. “We would need to see rates dip into at least the low 5’s before people holding these low rates will even consider making a move.”
Plus, depending on where folks are looking to buy, factors like zoning can dramatically slow down new construction. Currie, the REALTOR with Douglas Elliman of California, notes that the wildfires that recently ravaged the Los Angeles area have made an already difficult situation even worse.
“With all the regulatory hurdles we have, this region is already notoriously slow for construction and development,” he says. “Just getting enough qualified labor to rebuild the decimated areas is going to be a challenge, much less creating new housing to meet the demand from population growth.”
All that said, new construction can be part of the solution, if it’s available and affordable in your market.
“New builds will be helpful in the areas that they’re in,” says Jennifer Beeston, mortgage lender and senior vice president at Rate.com. She notes that in some markets, you can still find newly constructed units in the $200,000 to $300,000 range—but that a complicating factor is the areas with the worst shortages tend to get little new construction, such as Manhattan or San Diego.
In addition, prospective buyers should research builders before going under contract on new builds to make sure they have a record of high quality construction, Beeston notes.
“A lot of people are looking at new construction as a silver bullet, but it’s not,” she says.
Though sales of existing homes slowed notably in 2024 overall, the last quarter showed an uptick. The NAR release noted that in December, existing home sales hit the strongest rate since February.
DeFlorio of William Raveis Mortgage attributes some of that to the fact that even when the market is difficult, life doesn’t stop.
“2023 and 2024 were both very difficult markets for real estate,” she says. “However, not everyone has the ability to sit tight indefinitely, and due to the natural cycles of life—marriage, kids, divorce and death—we will see transactions continuing.”
Creative solutions are needed to reduce the lock-in effect
Beeston of Rate.com notes that until mortgage interest rates dip below 6%, the lock-in effect is going to be an issue.
“I feel like 5 is the magic number, but anything below 6 you’re going to start to see movement,” she says, adding that to really address the state of the housing market, government and lenders would need to get creative. “Until the government comes up with something to give us incentive to sell, you’re going to see this continue to happen,” she says.
As one example of creative thinking, consider that homeowners in Canada and Britain already have the chance to hold on to their mortgage when they buy a new home—a so-called “portable mortgage.” In other words, they can take the existing mortgage with its remaining balance, repayment period, and interest rate with them.
Beeston also floats a hypothetical where a bank could offer a customer with an existing 3% mortgage rate the opportunity to finance a new home with a loan at a 4% rate—higher than the existing loan, but enough below what’s on the market that it would be reasonable for a homeowner who already wanted to move to take the deal.
Solving the 2025 housing market puzzle
Though the housing market may be tough right now, folks shouldn’t give up hope. DeFlorio of William Raveis Mortgage offers the following advice to prospective homebuyers:
“It is very important not to try to game the rate market,” she says. “Instead of focusing on what the rate is, pay more attention to the monthly payment as that is what is going to impact your bottom line.”
Plus, when you’re smart about where you house hunt and what you can afford, and you work with an agent who knows the market, you may still find a home that you can feel good about. Beeston of Rate.com gives an example of a military veteran she worked with in Columbia, South Carolina who used a VA home loan to buy a $330,000 property with no down payment and a monthly payment slightly less than the typical rent in the same neighborhood.
“There’s a lot of opportunity right now—it’s just you have to look for it,” Beeston says.
