Why the Housing Market Is Stalling — Sales Fall 3.6% As Mortgage Rates Climb And Forecasts Get Cut

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The U.S. housing market cooled in March with existing home sales dropping 3.6% driven by a mix of climbing mortgage rates and a shortage of affordable inventory, according to a National Association of Realtors report.

The seasonally adjusted annual sales rate fell to 3.98 million units, marking a 1% decline from the same period last year.

"Sluggish" consumer confidence and a tightening mortgage environment are the primary culprits for the decline, NAR Chief Economist Lawrence Yun said.

The "two-speed" nature of the market is becoming more pronounced," said Selma Hepp, chief economist of real estate analytics firm Cotality, said in a statement.

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While high-cost coastal and Sun Belt regions are undergoing price corrections because of affordability seasons, the Midwest and Northeast have remained resilient because of their affordability and stable employment bases, Hepp said.

"Ultimately, locations with consistent job growth will remain the primary engines for price appreciation, but they also have larger inventory deficits, which are driving pressure on home prices," Hepp said.

Many house hunters are sidelined not just by rates but by a "stalled labor market" and economic uncertainty, according to a report by Redfin Head of Economics Research Chen Zhao and Chief Economist Daryl Fairweather.

Despite the dip in sales volume, home prices continued their upward trajectory because of a persistent lack of supply.

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The median existing home sales price rose to $408,800, a 1.4% increase for March 2025. It's the 33rd consecutive month of year-over-year price gains, NAR reported.

Inventory remains the primary hurdle for the "real estate ecosystem." While unsold inventory saw a modest 3% increase to 1.36 million units in March, the supply-to-demand ratio is well below historical norms at 4.1 months.

"An additional 300,000 to 500,000 homes for sale would help bring the market closer to normal conditions and allow consumers to make purchase decisions without feeling rushed," Yun said.

The supply squeeze has been a boon for current homeowners. The typical homeowner has accumulated $128,100 in housing wealth over the last six years, Yun said.

The forecast for new home sales was slashed from a 5% gain to flat growth for the remainder of 2026. However, the price forecast remains unchanged, with a 4% appreciation in home values by year-end.

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The NAR's Realtors Confidence Index revealed shifting buyer demographics:

- First-time buyers: Accounted for 32% of sales, down from 34% in February.

- Cash transactions: Made up 27% of deals, a slight dip from last month but up from a year ago.

- Investors: Individual investors and second-home buyers increased their market share from 16% to 18%.

- Days on market: Properties typically stayed on the market for 41 days, up from 36 days in March 2025.

The cooling market prompted NAR to revise its 2026 outlook downward. Citing the upward trajectory of mortgage rates — which averaged 6.18% in March compared to 6.05% in February, according to Freddie Mac — the association now expects existing home sales to grow by only 4% this year.

"The Great Housing Reset will take shape in 2026," Zhao and Fairweather wrote. "It won't be a quick price correction, and it won't be a recession. Instead, the Great Housing Reset will be a years-long period of gradual increases in home sales and normalization of prices as affordability gradually improves."

With mortgage rates elevated and affordability remaining stretched, many would-be buyers are finding it increasingly difficult to enter the housing market at all. At the same time, real estate continues to play a central role in wealth building, leaving some investors looking for alternative ways to gain exposure without purchasing a full home.

Platforms like Arrived allow individuals to invest in fractional shares of single-family rental properties, offering access to real estate exposure without the need to secure a mortgage or manage a property directly. This approach has become more relevant as higher borrowing costs and limited inventory continue to keep many buyers on the sidelines.

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