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U.S. Housing Market Cools Slightly in December 2025

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  Published in House and Home on Friday, February 6th 2026 at 16:20 GMT by HousingWire
      Locale: UNITED STATES

WASHINGTON - The U.S. housing market experienced a slight cooling in December 2025, according to the National Association of Realtors(R) (NAR). The Pending Home Sales Index (PHSI) registered a decrease of 0.5% to 106.3, interrupting a period of relative stability. However, experts emphasize that this minor dip shouldn't overshadow the overall positive trajectory of 2025, which saw a 4.2% year-over-year increase in the PHSI, indicating continued growth despite persistent challenges.

This moderate expansion suggests a resilient market adapting to ongoing economic pressures. While the rapid gains seen in some periods of the post-pandemic boom have subsided, the housing sector isn't experiencing a significant downturn, a scenario many predicted throughout 2025. Lawrence Yun, NAR's senior vice president of member engagement, highlighted this resilience, stating, "The housing market proved surprisingly resilient throughout 2025. While December's slight dip is understandable given the ongoing challenges, the overall positive trend for the year demonstrates the underlying demand for homeownership."

Regional Variations Paint a Nuanced Picture

The national figure masks significant regional variations. The Northeast experienced a 1.3% decline in pending sales, landing at 103.7. The Midwest held steady at 107.0, demonstrating relative stability in that region. The South also saw a decrease of 0.9% to 107.4, reflecting similar pressures to the Northeast. Notably, the West was the only region to post gains, with a 0.5% increase to 105.7. The West also demonstrated the strongest year-over-year gains, indicating a potential shift in demand toward areas with more robust economic growth or appealing lifestyle factors.

These regional discrepancies are likely tied to local economic conditions, population shifts, and inventory availability. The Sun Belt states, previously a major driver of housing demand, are now showing signs of moderation, while areas in the West, fueled by tech industry growth and migration patterns, are still experiencing relative strength.

The Affordability and Inventory Conundrum

While demand remains, the housing market continues to grapple with two key obstacles: affordability and inventory. Mortgage rates, although easing from their peak in 2024, remain elevated, significantly impacting potential homebuyers' purchasing power. This means that even with stable or slightly declining home prices, the overall cost of homeownership remains substantial. Further exacerbating the situation is the persistent lack of available homes for sale. The supply of existing homes has been constrained for several years, and new construction hasn't kept pace with demand.

"Mortgage rates are still elevated, and inventory is still constrained," Yun explained. "These factors are keeping some buyers on the sidelines, but those who are actively looking are facing a competitive market." This dynamic is creating a situation where qualified buyers are competing for a limited number of properties, driving up prices and potentially leading to bidding wars. First-time homebuyers, in particular, are feeling the pinch, as they often lack the financial resources to compete with more experienced buyers.

Looking Ahead to 2026: Volatility and Uncertainty

The NAR anticipates that volatility will continue to characterize the housing market in 2026. Predicting the future direction of the market is complex, given the interplay of various economic factors. The path of mortgage rates will be crucial; any significant decrease could stimulate demand and alleviate affordability concerns. However, if rates remain high or even rise further, it could further dampen buyer enthusiasm.

Economic growth will also play a significant role. A strong economy typically supports housing demand, while a recession could lead to job losses and a decline in home sales. Finally, inventory levels remain a wild card. If builders increase construction activity and more homeowners decide to list their properties, it could help to ease the supply shortage and stabilize prices.

Experts suggest keeping a close watch on inflation data, Federal Reserve policy decisions, and employment figures, as these indicators will provide valuable clues about the future trajectory of the housing market. The market is currently in a delicate balance, and even minor shifts in these factors could have a significant impact on home sales and prices throughout 2026.