This year’s housing market was expected to be better than it was in 2024, when historically low inventory resulted in historically low sales. Despite the incredibly low bar, there are fresh concerns that the market is stumbling out of the gate.
That’s because last week’s existing-home sales report from the National Association of Realtors (NAR) showed sales in March at a seasonally adjusted annual rate of 4.02 million, which is even lower than the dismal figure of 4.06 million at the same time in 2024.
This news was partially offset by a positive new-home sales report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). In March, new homes sold at an annual rate of 724,000, the fastest pace since April 2024.
What should we make of the dueling reports? Here are five takeaways.
Low inventory is becoming less of a problem
For years, the housing market has been starved for inventory, and that problem increased when the post-pandemic market came to a halt. Homeowners who secured mortgages with historically interest rates aren’t inclined to give up that rate by selling their homes and buying a new one.
But the severity of this problem is easing, as the number of homes for sale is rising rapidly all over the country across the new and existing segments. But it’s more pronounced in the existing-homes market, where inventory is up almost 20% year over year.
The trend is particularly strong in the Northeast and the South, where inventory is up 25% and 16.6%, respectively. This is true for both new and existing homes.
Existing-home sales are not rising at the pace of inventory
Despite having many more choices than they did a year ago, homebuyers aren’t jumping into the market at a rate that matches the rise in for-sale supply. Existing-home sales in March actually declined by 2.4% year over year.
It’s a different story with new-home sales, which are up 6% from a year ago. Inventory has grown by 8.4% in that time, suggesting that demand for new homes is more responsive to increases in supply.
Pending sales foreshadow a more active market
While new- and existing-home sales tell us something about the market from the beginning of the year, pending home sales are more about what’s to come. The Pending Home Sales Index (PHSI) from NAR rose 6.1% in March, the largest monthly increase since December 2023.
Lower mortgage rates in March spurred the market
Home sales continue to be highly responsive to changes in mortgage rates. According to NAR, the average rate in March was 6.65%, down substantially from January and February, when the average rates were 6.96% and 6.84%, respectively.
The relief was short-lived, however, as mortgage rates shot up in the aftermath of President Donald Trump’s new global tariff regime on April 2. Rates peaked last week at 7% but have since fallen slightly to 6.93%.
Tariffs cloud the future of the housing market
No one knows what to expect moving forward because of Trump’s approach to tariffs. The president has enacted and paused so many different tariffs during his first 100 days in office that markets have turned volatile due to the uncertainty alone.
It’s possible this is contributing to the divergence between declining existing-home sales and the rise in inventory. Consumer confidence has tanked on the expectation of higher inflation, which will prompt some prospective homebuyers to pause their home searches.
Conversely, some sellers may want to get out in front of any economic turbulence by listing their home for sale now rather than later. And if rates stay high and the economy sags, it will likely repress the entire housing market.
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