Key Points:

• Sales activity has increased modestly as mortgage rates ease and affordability improves.
  
  
• Mortgage applications hint at rising demand, but not enough to restore “normal” market levels.
  
  
• Potential sellers, who would also likely be buyers, remain reluctant, keeping a lid on the recovery.
  
  

After a prolonged slump, the existing-home market is showing signs of recovery. Our Existing-Home Sales Outlook model points to a modest increase in sales in September from both August’s pace and from one year ago, while other early indicators—from rising mortgage applications to improving affordability—suggest that demand is beginning to stir. While the direction is encouraging, the scale of the recovery remains limited. 

“Housing turnover still happens because life still happens. Life events, such as marriage, expanding families, job changes and divorce, always has and always will drive sales activity.”

A Modest Turn Upward

Historically, prior to the pandemic, existing-home sales average about 4.1 percent of total U.S. households. Applying that long-term rate to today’s total households implies an annualized pace of roughly 5.4 million annualized sales—about 35 percent higher than the current rate of 4 million. This gap reflects suppressed market participation rather than a shortage of potential movers.

Lower mortgage rates combined with modest gains in affordability sparked increased market participation. After years of stagnation, even a small increase represents meaningful progress. Mortgage application data tells a similar story. The average of weekly purchase applications in September jumped nearly 8 percent from the previous month and surged 19 percent from a year ago, suggesting that more would-be buyers are testing the waters as affordability improves. 

Affordability and Expectations Remain Hurdles

House-buying power in September—the amount of home one can afford based on the median household income and prevailing 30-year fixed, mortgage rate—reached its highest level since early 2022. Affordability, as measured by our Real House Price Index, which adjusts nominal prices for changes in house-buying power, also improved to its best level since September 2024, driven by modestly lower rates, rising incomes, and modest price growth. Improved affordability may encourage some on-the-margin buyers and sellers to re-enter the market.

Yet, these recent improvements in affordability have not fully offset years of rapid home price appreciation and elevated borrowing costs. Affordability remains more than 65 percent below its pre-pandemic, five-year average. On the seller side, psychology remains a major constraint. Many homeowners continue to hold out for higher prices and are hesitant to list their homes at today’s lower valuations, while others remain locked in by the ultra-low mortgage rates they secured during the pandemic. The result is an unusually high level of seller withdrawal, constraining inventory levels and muting sales activity.

The “Life-Event” Road Back to Normal

Even with some progress on affordability and a gradual easing in mortgage rates, the broader economic backdrop continues to cloud the housing market’s outlook. Job growth has softened, inflation remains stubborn, and consumer confidence is subdued. In this environment, both buyers and sellers remain cautious. 

Yet, housing turnover still happens because life happens. Life events, such as marriage, expanding families, job changes and divorce, always has and always will drive sales activity. Broad-based momentum back to ‘normal’ will take time as ‘life happens,’ affordability slowly improves, the rate lock-in effect eases, and economic uncertainty fades. The housing market recovery is underway, but it’s just beginning and will take time.

September 2025 Existing-Home Sales Outlook Highlights

For the month of September, First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for September are expected to increase 0.6 percent from last month’s pace of sales, and increase 3.2 percent compared with the pace of sales a year ago.
  
  
• The largest contributors to the projected monthly increase in existing-home sales are a resilient economy (+0.3 percent), higher house-buying power (+0.3 percent), a weaker rate lock-in effect* as measured by the lagged* spread between the prevailing market mortgage rate and the average rate for all outstanding mortgages (+0.2 percent), and greater credit availability (+0.04 percent).

^{*The spread is incorporated with a two-month lag in the Existing-Home Sales Outlook model.}

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.