Home sales show signs of recovery

January 13, 2026

New home sales, which are recorded at the contract signing, slipped 0.1% in October after jumping 3.8% in September. Data for both months were delayed due to the government shutdown that ended on November 12, 2025.

New home sales were strongest in the South, the largest housing market by volume. Compared to a year ago, sales were up 18.7% with incentives and somewhat lower rates.

The median sales price of a newly built home came to $392,000, 8% below the year-ago level. One-quarter of homes sold at less than $300,000, the largest proportion in that price range since August 2021. Builders have continued to offer discounts and mortgage rate buydowns to get buyers in the door. According to the National Association of Home Builders, 40% of builders reported cutting prices in November and December; that is the highest share since May 2020 and will show up as a boost in sales activity at year-end.

Inventory of newly built homes fell to a 7.9 months’ supply at the current sales pace in September and October. Builders sat on a cycle peak of 9.6 months of supply back in May of 2025 but have since been able to bring inventory closer to balance. The smallest builders were the ones with the greatest unsold inventory, partly due to their inability to match the price incentives the larger builders could offer.

Existing home sales, which are recorded at the contract closing and are a more lagged indicator of housing activity, rose to an eight-month high in October to 4.1 million. Sales in the Midwest and South boosted overall activity.

Inventory was 10.9% higher than a year ago, but still below the level considered to be a balanced market. Some listings were being pulled from the market due to sellers’ realization that they cannot command the type of prices that ruled the pandemic-era market. Some prefer to pull their homes off the market and wait or rent them out instead of continuing to offer price cuts.

Many parts of the country are seeing price declines due to an initial overvaluation during 2020-22. Prices in the Northeast and Midwest are still rising in many markets, while the South and West are seeing annual price declines. The South is the region that has the most new housing construction and supply coming on line. Affordability remains constrained on a national level, especially as costs of insurance, taxes and utilities continue to rise.

Mortgage rates have remained below 6.5% since early September, hitting a 12-month low by late October. That helped dramatically boost refinancing applications, which soared 151% compared to a year ago. There are now more mortgage holders with a 6% or higher rate than those with a lower than 3% rate, which means any dip in the average mortgage rate will spur more refinancing activity. Applications to purchase a home rose to levels last seen in late 2023 on a 6-month moving average in October. We remain significantly below the 2021 peak for applications.

Mortgage rates are expected to come down further in 2026 due to a decline in spread between the 10-year Treasury rate and the 30-year fixed mortgage rate. The spread hit a high of nearly 300 basis points in 2023 after the Federal Reserve began letting its mortgage-backed securities (MBS) holdings roll off its balance sheet in 2022. The administration’s direction for the government sponsored enterprises (GSEs) to purchase an additional $200 billion in MBS in early January pushed mortgage rates to below 6% temporarily. The GSEs already hold about $70 billion in MBS, making them the smallest holder compared to banks, the Federal Reserve, foreign buyers and other investors.