The U.S. housing market has spent much of the last two years navigating uncertainty. Rising interest rates, affordability challenges, hesitant buyers, and reluctant sellers created a prolonged slowdown that many wondered would define the post-pandemic era. But recent data suggests a meaningful shift may be underway.

According to the National Association of REALTORS® (NAR), existing home sales jumped 5.1% in December, marking the fourth consecutive monthly increase and reaching the strongest level in nearly three years. Sales were also 1.4% higher than one year earlier, a notable milestone after months of year-over-year declines.

At the same time, new home sales remain near recent highs, mortgage rates have eased from their 2024 peaks, and broader economic indicators point to a stable if cautious consumer environment.

So what does this actually mean for buyers, sellers, and homeowners heading into the spring market? And how sustainable is this momentum?

Let’s break down the data, the drivers behind it, and what may come next.

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Existing Home Sales Surge: A Turning Point in the Market?

December’s 5.1% increase in existing home sales represents more than a seasonal bump. It signals a shift in buyer behavior that has been building quietly over several months.

This marks the fourth straight monthly increase in closings, a trend that suggests pent-up demand is finally re-entering the market. For much of 2023 and early 2024, buyers sat on the sidelines, waiting for mortgage rates to stabilize and prices to cool. That patience now appears to be giving way to action.

NAR Chief Economist Lawrence Yun summarized it clearly: sales reached their strongest level in nearly three years, supported by lower mortgage rates and slower home price growth toward the end of last year.

In other words, buyers didn’t suddenly become more optimistic the math simply started to work again.

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Mortgage Rates: The Psychological and Practical Trigger

Mortgage rates remain the single most influential factor shaping housing demand. While rates are still elevated compared to the ultra-low levels of 2020–2021, the decline from recent highs has been enough to change buyer psychology.

Even modest rate improvements can significantly affect affordability, monthly payments, and purchasing power. More importantly, they restore a sense of predictability. Buyers don’t need perfect conditions they need confidence that the market isn’t working against them.

Lower rates late last year encouraged buyers who had been pre-approved months earlier to finally move forward. That wave of delayed decision-making is now showing up in closing data.

If rates continue to trend lower or even remain stable, buyer demand is likely to build as we move deeper into the spring homebuying season.

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Inventory Tells a Complicated Story

At first glance, housing inventory appears to be tightening again. Total existing home inventory fell 18.1% from November, landing at 1.18 million homes in December.

However, inventory was still 3.5% higher than a year earlier, highlighting the nuance in the data. Month-to-month declines reflect seasonal patterns and faster absorption, while year-over-year growth suggests supply conditions are not as constrained as they once were.

That said, inventory remains historically low by pre-pandemic standards. The market is functioning but it is not flush with options.

This imbalance between demand and supply is one of the most important dynamics shaping price behavior. Even with slower price growth, limited inventory prevents meaningful price declines in most markets.

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Slower Price Growth: A Window of Opportunity

One of the most encouraging aspects of the current market is not falling prices, but slower price appreciation.

After years of rapid gains, price growth cooled late last year, giving buyers breathing room. This moderation, combined with lower rates, has created what many see as a narrow but meaningful window of opportunity.

For buyers, it means less competition than the frenzied markets of the past, more negotiating power, and greater choice. For sellers, it means pricing strategy matters more than ever but well-positioned homes are still attracting serious interest.

If buyer demand accelerates faster than supply can respond, price growth could reaccelerate later this year.

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New Home Sales: Quietly Resilient

While existing home sales grabbed headlines, new home sales remained near recent highs, underscoring another important theme: builders are filling gaps where resale inventory falls short.

New home sales edged down just 0.1% from September to October, landing at an annualized pace of 737,000 units. That level remains near the fastest pace since May 2023 and exceeded economists’ expectations.

These sales reflect contracts signed when mortgage rates were easing, reinforcing how sensitive buyer activity is to financing conditions.

Builders have been especially active in offering incentives, rate buydowns, and flexible financing tools that many resale sellers cannot match.

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The Illusion of New Home Supply

On paper, new home inventory looks strong. At the end of October, 488,000 new homes were available, one of the highest levels since 2007.

But the headline number hides a critical detail: only 122,000 of those homes were completed and move-in ready.

The majority of inventory remains either under construction or not yet started. For buyers who need or want immediate occupancy, options are still limited.

This disconnect highlights a persistent structural challenge in the housing market the shortage of finished, livable homes.

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Why Builders Can’t Quickly Fix the Supply Problem

It’s tempting to assume that higher demand will naturally lead to more supply. In reality, builders face significant constraints.

Permitting timelines, zoning requirements, labor shortages, material costs, and regulatory hurdles all slow the pace of construction. Even in favorable conditions, it can take years to bring new housing stock online.

As a result, if mortgage rates continue to fall and buyer demand strengthens, prices could once again face upward pressure not because of speculation, but because supply simply can’t keep up.

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The Labor Market: Stable, Not Overheating

Housing doesn’t exist in a vacuum. Broader economic conditions matter, particularly employment.

Recent labor market data points to what economists describe as a “low-fire, low-hire” environment. Initial jobless claims fell to 198,000, while continuing claims declined to 1.884 million.

While continuing claims remain elevated compared to earlier cycles, the overall picture is one of stability rather than distress. People are largely staying employed, which supports housing demand and consumer confidence.

This environment reduces the likelihood of forced selling and widespread price declines.

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Inflation Data: Mixed but Manageable

Delayed Producer Price Index (PPI) data for November showed wholesale inflation rising 0.2% month over month and 3% year over year, driven partly by higher energy costs.

However, core producer prices, which exclude food and energy, were flat on the month and also up 3% year over year.

For housing, this matters because inflation trends influence interest rates. Stable core inflation supports the case for rate cuts or at least prevents further tightening.

As long as inflation remains contained, mortgage rates are unlikely to spike again a key ingredient for sustained housing demand.

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Retail Sales: The Consumer Is Still Spending

Retail sales surprised to the upside in November, rising 0.6% month over month after a revised decline in October. Gains were broad-based, with ten of thirteen categories posting increases.

This data suggests consumers are not retreating they are adjusting. Spending remains healthy, supporting economic growth and reinforcing the idea that housing demand is constrained more by affordability and supply than by fear or financial stress.

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What This Means for Buyers

For buyers, the current market offers a mix of opportunity and urgency.

Mortgage rates have eased, price growth has slowed, and competition is less intense than in previous cycles. At the same time, inventory remains limited, and conditions could tighten quickly if demand accelerates.

Buyers who are prepared, pre-approved, and decisive may find this period favorable especially before spring competition intensifies.

Waiting for perfect conditions may mean missing the window entirely.

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What This Means for Sellers

Sellers face a more nuanced market than in recent years. Homes that are priced correctly and well-presented are selling. Those that are not are sitting.

The return of buyer demand does not mean a return to unchecked price growth. Strategic pricing, realistic expectations, and professional guidance are essential.

As demand builds, sellers who act early may benefit from increased interest before inventory rises later in the year.

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The Bigger Picture: A Market Finding Its Footing

The strongest existing home sales in nearly three years do not signal a boom but they do signal stability.

This is a market transitioning from hesitation to engagement, from uncertainty to cautious confidence. Lower mortgage rates, slower price growth, resilient employment, and steady consumer spending have aligned to bring buyers back.

The housing market doesn’t need perfection to function. It needs balance. And for the first time in a while, that balance appears to be within reach.

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Looking Ahead to Spring

If current conditions persist, buyer demand is likely to continue building into the spring homebuying season. That momentum could place renewed pressure on inventory and prices, particularly in desirable, supply-constrained markets.

For buyers and sellers alike, understanding these trends and acting strategically will matter more than timing the market perfectly.

The data is clear: housing activity is not just stabilizing. It’s strengthening.

And those who pay attention now will be best positioned for what comes next.

Suzanne Dyer
Wall Street Journal/REALTRENDS #59 in California, #204 in the Nation
Luxury Real Estate Specialist
Los Angeles Business Journal Top 100 Realtors in Los Angeles
Top Woman Listing Agent in the South Bay & Palos Verdes 2023
Over 1 Billion Dollars in Career Sales
Top Realtor in Rolling Hills, Rolling Hills Estate, Rancho Palos Verdes, Palos Verdes Estates, and the South Bay
Strand Hill | Forbes Global Properties
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www.suzannedyer.com
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