Lower Mortgage Rates Push Home Sales to Nearly a 3-Year High
Lower mortgage rates and home sales activity gained momentum toward the end of last year, helping lift existing-home sales to their strongest pace in nearly three years. While affordability challenges remain, the recent decline in mortgage rates has encouraged more buyers to move forward.
According to the National Association of REALTORS®, existing-home sales increased 5.1% in December, even after seasonal adjustments. Sales were also 1.4% higher than a year earlier, signaling a gradual but meaningful shift in market activity. The December increase followed a smaller gain in November, both tied to mortgage rates that began easing in the fall.
After a difficult year for buyers, this momentum suggests conditions may be slowly improving.
The Mortgage Rate Effect
Mortgage rates have played a central role in the recent pickup in activity. The 30-year fixed-rate mortgage averaged 6.19% in December, down from roughly 7% at the start of 2025. That decline has translated into noticeable monthly savings for buyers.
For example, on a $500,000 home with a 10% down payment, a buyer financing at 7% would face a monthly payment of about $3,895. At 6.25%, that payment drops to approximately $3,672, a difference of $223 per month, according to LendingTree.
Housing affordability has also benefited from income growth, which rose 3.8% year over year in October, helping offset higher home prices. As rates declined, mortgage applications for home purchases remained up by double digits compared to last year, often a leading indicator of future sales.
Looking ahead, NAR forecasts mortgage rates will average around 6% in 2026. A one-percentage-point drop from 7% to 6% could potentially expand the pool of qualified buyers by 5.5 million households, including 1.6 million renters, according to NAR research.
Buyers Still Face Challenges
Despite lower rates, the market remains challenging for many buyers.
Housing inventory declined 18% from November to December, following several months of improvement. While inventory typically falls during winter months, supply remains 3.5% higher than December 2024, giving buyers more options than a year ago but still fewer than in a fully balanced market.
Home prices also remain elevated, though price growth has slowed. The median existing-home price was $405,400 in December, up just 0.4% from a year earlier, a notable cooling compared to recent years.
Economic uncertainty continues to influence buyer behavior. A RE/MAX consumer survey found that about 70% of prospective buyers delayed purchasing plans in late 2025, citing costs and uncertainty. However, many respondents said lower mortgage rates and more affordable pricing would motivate them to move forward within the next six months.
Regional Snapshot: December Home Sales
Here’s how existing-home sales performed across the country in December, according to NAR:
- Northeast: Sales rose 2% month over month to an annual rate of 520,000, though they remain 1.9% lower than a year ago. Median price: $496,700, up 3.7% year over year.
- Midwest: Sales increased 2% to an annual pace of 1 million, matching last year’s level. Median price: $306,000, up 3.1%.
- South: Sales climbed 6.9% to an annual rate of 2.02 million, up 3.6% year over year. Median price: $360,200, down 0.3% from December 2024.
- West: Sales rose 6.6% to an annual pace of 810,000, unchanged from a year ago. Median price: $605,600, down 1.4% year over year.
What This Means Moving Forward
Lower mortgage rates have clearly helped restore some momentum to home sales, but they haven’t erased all of the challenges buyers face. Inventory remains constrained in many areas, and affordability is still stretched for households without significant savings or equity.
That said, the combination of slower price growth, improving incomes, and easing mortgage rates has created a more active and balanced environment than buyers experienced over much of the past two years.
Contact the Roylin Sells Real Estate Group today.
Frequently Asked Questions
Q: Are lower mortgage rates the main reason home sales increased?
A: Yes. Lower rates have reduced monthly payments and encouraged more buyers to re-enter the market, though other factors like income growth also play a role.
Q: Are home prices falling?
A: Nationally, prices are largely stable, with slower growth rather than broad declines.
Q: Is inventory improving for buyers?
A: Inventory is higher than a year ago but still limited in many markets, especially during the winter months.
Q: Will mortgage rates continue to fall in 2026?
A: Forecasts suggest gradual easing rather than sharp drops, with rates hovering around 6%.
Q: Is this a buyer’s market now?
A: Conditions are more balanced than in recent years, but it is not yet a true buyer’s market in most regions.
