As if there wasn’t already enough doom and gloom about the ongoing housing crisis last year, things have gone from bad to worse in 2025.
Home prices broke another record last month: The median price of homes sold in January reached an all-time high of $396,900. That’s a 4.8% increase from the year prior and the 19th consecutive monthly increase.
It’s no wonder that sales of previously owned homes dropped 4.9% last month to 4.08 million units, according to the National Association of Realtors—far lower than the 2.9% decline analysts were projecting.
Overall, there were 1.18 million homes for sale by the end of last month, a 3.5% increase from December and a 17% increase from January 2024. But buyers weren’t biting: The average home for sale spent 41 days on the market, the longest span since January 2020.
So what’s the problem? Persistently sky-high mortgage rates, along with a limited number of listings and stubbornly high prices.
“Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve,” explained NAR Chief Economist Lawrence Yun in a statement. “When combined with elevated home prices, housing affordability remains a major challenge.”
While the problem last year was that homeowners weren’t selling because they locked in low mortgage rates, the problem now is that even though more inventory is coming to market, nobody is buying because mortgage rates still haven’t dropped. First-time buyers, who don’t have the capital from selling a previous home, have been hit especially hard by elevated rates.
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“Historically, the number of homes for sale is positively correlated with the measure of home buyers,” Zillow Senior Economist Orphe Divounguy wrote. “Mortgage rates remain a key factor, and while rates remain higher than a year ago, they have been easing since mid-January,” he added.
This isn’t your grandmother’s real estate market
We all know that avocado toast isn’t the reason that millennials aren’t buying homes. But avocados or no avocados, younger homebuyers struggle to accrue the funds necessary to make a down payment, which is why the median age of first-time homebuyers climbed from 35 to 38 last year, and the median age of all homebuyers in the US rose to 56.
But there may be light at the end of the tunnel, according to Divounguy. “Moving forward, Zillow forecasting expects home values to increase by just 0.9% this year – a drop from the previous expectation of 2.9%. Despite a weaker-than-expected start of the year, Zillow forecasts 4.11 million existing home sales in 2025.”—LB