The American housing market rebounded with unexpected vigor in December 2025, as existing-home sales climbed 5.1% to reach 4.35 million—the highest level in nearly three years. This surge, which touched all four U.S. regions, signals a meaningful shift after months of stagnation driven by stubborn mortgage rates and weakened buyer confidence.
December’s 5.1% sales surge to 4.35 million homes marks the strongest performance in nearly three years across all regions.
The catalyst for this turnaround traces directly to mortgage rates, which fell approximately 75 basis points between late May and mid-September 2025. That decline rippled through the market, translating into improved sales trends that carried momentum into year-end.
Forecasters predict spring 2026 rates will settle around 6.3%, down from 6.8% the previous spring, while builders sweeten deals with buydowns of 100 to 200 basis points. These factors, combined with rising mortgage purchase applications in early January 2026, suggest the momentum may persist.
Industry experts project existing home sales will increase 3% year-over-year in 2026, reaching an annualized rate of 4.2 million by December. A stronger spring homebuying season appears likely, though regional dynamics vary considerably.
The South recorded year-over-year gains in December, while the Midwest and West remained flat, and the Northeast slipped backward. West Coast and Sun Belt markets face notable price declines, partly due to a supply glut from pandemic-era construction booms.
Despite these encouraging trends, affordability remains stubbornly problematic. The National Association of Realtors’ affordability index sat 35% below pre-COVID levels in November, with expensive down payments and monthly mortgage obligations keeping many prospective buyers sidelined.
Job market concerns compound these challenges, limiting buyer capacity just as conditions begin improving. AI-driven job concerns are expected to hold some potential buyers back as labor-market weakness persists.
Housing supply dynamics offer mixed signals. J.P. Morgan revised the national housing shortage to approximately 1.2 million homes, while overall inventory has climbed in recent months.
Apartment construction has slowed from its 2021-2022 surge, creating increased competition for rental units. New listings are expected to rise in 2026 and 2027 compared to the previous three years, gradually pushing the market toward equilibrium.
The fourth quarter’s broad-based regional gains suggest the market is regaining balance, though sustained momentum depends on pending home sales data in coming months. Single-family home activity, which climbed 5.1% to an annualized rate of 3.95 million, accounted for the bulk of the surge. NAR Chief Economist Lawrence Yun characterized 2025 as a tough year for homebuyers, marked by record-high prices and historically low sales volumes.
