Existing Home Sales Surprise to the Upside as 2025 Closes on a Stronger Note

After a year defined by high mortgage rates, stretched affordability, and hesitant buyers, the U.S. housing market ended 2025 with an unexpected burst of momentum.

Existing home sales jumped sharply in December, easily beating analyst expectations and marking the strongest seasonally adjusted pace in nearly three years. While annual sales volumes remained flat compared to 2024, the late-year acceleration — combined with slowing price growth — suggests the market may be finding its footing heading into 2026.

Is this the start of a real recovery, or just a temporary release of pent-up demand? The details matter and they reveal a market that is improving, but still constrained.

December Delivered More Than Expected

The latest data shows that December wasn’t just better — it was meaningfully better than forecasts.

Here are the most important takeaways from the report:

• December existing home sales rose to 4.35 million units, seasonally adjusted and annualized
• Sales increased 5.1% from November, well above the 2% gain economists expected
• Sales were 1.4% higher than December 2024
• Full-year 2025 sales totaled 4.06 million, unchanged from 2024
• December marked the strongest monthly pace in nearly three years, seasonally adjusted
• Median home price came in at $405,400, up just 0.4% year over year
• Inventory fell sharply month over month, tightening supply again

On the surface, this looks like a market waking up after a long slowdown.

Why December Sales Were Stronger Than They Look

The December sales surge reflects more than just year-end activity — it reflects decisions made earlier in the fall.

Existing home sales are based on closings, not contract signings. That means many of December’s transactions were negotiated in October and November, when mortgage rates were relatively stable and meaningfully lower than their mid-2025 peaks.

During that window, the average 30-year fixed mortgage rate hovered between roughly 6.2% and 6.3%. While still elevated by historical standards, those rates were notably below the near-7% levels seen last spring and summer.

For many buyers who had been waiting on the sidelines, that stability — not necessarily a dramatic drop — was enough to move forward.

Have you noticed how buyers respond more to predictability than perfection? That’s exactly what played out here.

Regional Performance Shows an Uneven Recovery

The December improvement was broad, but not uniform.

Sales rose month over month in all U.S. regions, signaling nationwide improvement in activity. On a year-over-year basis, however, the picture was mixed:

• Northeast and Midwest: Sales increased annually
• South and West: Sales declined compared to last year

These regional differences reflect variations in affordability, insurance costs, migration patterns, and price levels. Markets that saw the steepest price run-ups during the pandemic continue to face more resistance, while more affordable regions are recovering faster.

This unevenness suggests that the 2026 housing recovery will likely be market-specific rather than national in nature.

Inventory: Still the Market’s Biggest Constraint

If December had a downside, it was inventory.

At the end of the month, there were 1.18 million homes available for sale, down a sharp 18% from November, though still 3.5% higher than a year earlier.

With stronger sales and fewer listings, the months’ supply dropped to just 3.3 months — a level widely considered tight. Historically, a balanced market sits closer to five to six months of supply.

Low inventory continues to limit how far sales can rise and helps explain why prices haven’t fallen meaningfully, even as affordability remains stretched.

You can’t buy what isn’t listed — and this remains housing’s fundamental bottleneck.

Prices Are Still Rising — But Barely

The good news for buyers is that price growth continues to cool.

The median existing home price in December was $405,400, up just 0.4% from a year earlier. That marked the 30th consecutive month of annual price gains, but also represented a noticeable slowdown from November’s 1.2% annual increase.

This matters.

Slower price growth improves affordability at the margin, especially when combined with steady income gains. It also reduces the fear among buyers that waiting will only make homes more expensive.

Is this what “normalization” starts to look like? Possibly — but supply will decide how far it goes.

What the Full-Year Numbers Really Say

Despite December’s strength, 2025 as a whole remained challenging.

Total existing home sales for the year came in at 4.06 million, unchanged from 2024 and well below pre-pandemic norms. This confirms that while conditions improved late in the year, the broader market is still operating at a subdued pace.

According to National Association of Realtors, 2025 was defined by affordability constraints and historically low turnover — not a lack of demand, but a lack of feasible opportunity.

As Lawrence Yun, Chief Economist for the organization, noted, record-high home prices and limited inventory made it another tough year for buyers. However, he also pointed out that conditions began improving in the fourth quarter as mortgage rates eased and price growth slowed.

That combination is critical.

Sellers Are Still Hesitant — But That May Change Soon

One reason inventory tightened again in December is seller hesitation.

Many homeowners remain reluctant to list because doing so would mean giving up ultra-low mortgage rates locked in before 2022. For “optional” sellers, the math still doesn’t work.

However, that dynamic is slowly shifting.

Seasonal patterns suggest that more inventory typically comes to market starting in February. Life events — job changes, family growth, downsizing — continue regardless of rate conditions.

As Yun noted, homeowners are taking their time, but more listings are expected as 2026 gets underway. Even modest increases in supply could have an outsized impact on sales activity.

Could a small inventory bump unlock more transactions than expected? History suggests yes.

What This Means for Buyers

For buyers, the December data offers cautious encouragement.

Prices are no longer accelerating, inventory is slowly improving year over year, and mortgage rates are lower than last year’s peaks. While affordability remains challenging, conditions are more stable than they were for much of 2025.

The strongest opportunities may lie in markets where inventory is rising faster than demand, especially for buyers willing to negotiate rather than chase.

Patience and preparation will matter more than speed.

What This Means for Investors

For investors, the data reinforces a familiar theme: housing is recovering slowly, not surging.

Low inventory continues to support prices, limiting downside risk in many markets. At the same time, modest price growth reduces the risk of overheating.

Investors focused on long-term fundamentals rental demand, employment stability, and demographic growth are likely to fare better than those chasing short-term appreciation.

Does this feel like a market built for discipline rather than speculation? That’s an accurate read.

Why 2026 Is Setting Up as a Transitional Year

The strong December finish doesn’t erase the challenges of the past two years, but it does signal a shift in momentum.

Mortgage rates don’t need to fall dramatically for activity to improve they need to stabilize. Prices don’t need to drop — they need to stop racing ahead of incomes. Inventory doesn’t need to flood the market — it just needs to grow gradually.

All three of those conditions are beginning to align.

That’s why 2026 is shaping up as a transitional year one where progress comes in steps, not leaps.

Conclusion: A Quiet Win for a Patient Market

Existing home sales didn’t roar back in 2025 — but they ended the year on a quietly strong note. December’s performance shows that buyers are still there, waiting for the right combination of rates, prices, and choices.

At Nadlan Capital Group, we see this as a market that is healing, not overheating. The foundation for a healthier housing environment is being rebuilt slowly, but deliberately.

Do you think this late-2025 momentum will carry into the spring market, or will affordability challenges resurface? Share your thoughts with us and stay connected with Nadlan Capital Group for clear, data-driven insights as the housing market evolves.