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US Housing Market Stagnant Despite Rate Drops

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  Published in House and Home on Sunday, January 25th 2026 at 13:38 GMT by Orange County Register
      Locales: California, UNITED STATES

Sunday, January 25th, 2026 - The U.S. housing market continues to navigate a perplexing landscape. Despite a significant drop in mortgage rates from their 2023 peak, existing home sales remain stubbornly subdued, clocking in 18% below the historical average for January, according to data released by the National Association of Realtors (NAR). This stagnation underscores a deeper malaise within the market, highlighting the complex interplay of affordability, inventory, and buyer psychology.

The latest figures reveal a seasonally adjusted annual sales rate of 3.89 million homes last month, representing a 14.5% decrease compared to the previous year. This marks the lowest January sales figure recorded in a decade, a stark indicator of the ongoing challenges facing both buyers and sellers.

The Rate Decline Paradox

Mortgage rates, having crested above 7% in late 2023, have retreated to approximately 6.6%. This decrease, traditionally a catalyst for increased buyer activity, has failed to ignite a substantial rebound. Lawrence Yun, chief economist at NAR, succinctly pinpointed the core issue: "Affordability remains a hurdle." While lower rates provide some relief, they aren't enough to offset the persistent issue of elevated home prices.

This phenomenon - lower rates failing to translate into increased sales - is becoming a familiar pattern. It suggests that potential buyers are not solely driven by interest rates; broader economic anxieties and the sheer cost of homeownership are playing an equally significant role.

Inventory Remains the Key Constraint

The chronic shortage of available homes is a major contributing factor to the ongoing market slowdown. The median existing home price currently sits at $382,800, a 4.2% increase year-over-year. This consistent price appreciation limits affordability and continues to price out many potential buyers.

Jeff Tucker, senior economist at Zillow, observed a palpable tension in the market: "Buyers are still hesitant. They're waiting for prices to fall, but sellers are reluctant to lower their prices, knowing that inventory is tight." This stalemate creates a frustrating cycle, preventing a natural market correction. Sellers, benefiting from limited supply, are wary of reducing prices, while buyers, anticipating further declines, are holding back.

Shifting Buyer Sentiment & Economic Uncertainty

Beyond the purely financial factors, a shift in buyer sentiment is also at play. The era of aggressively low interest rates and rapid home appreciation has ended, leaving potential buyers questioning the long-term value proposition of homeownership. Many are grappling with uncertainty about the broader economic outlook - concerns about potential job losses, inflation, and further interest rate increases. The psychological impact of the 2020s housing boom and subsequent adjustments is also weighing on the market.

"It's a very challenging environment for buyers," according to Daryl Fairweather, chief economist at Redfin. The combination of high prices, limited inventory, and lingering economic anxieties has created a climate of cautiousness among potential homeowners. The desire to avoid overextending financially and the fear of being "house poor" are influencing purchasing decisions.

Looking Ahead: What's Needed for a Rebound?

For the U.S. housing market to truly rebound, several conditions need to be met. A significant increase in housing inventory is paramount. This could involve more existing homeowners deciding to sell, or a surge in new construction - although new construction faces its own supply chain and labor challenges. Further declines in mortgage rates, perhaps below 6%, would also help ease the affordability burden. Ultimately, however, restoring buyer confidence through economic stability and a perception of long-term value will be essential to unlock pent-up demand and revitalize the housing market.