January Home Sales Plunge 8.4% as America's Top Economist Declares a 'New Housing Crisis'

The January existing home sales report from the NAR landed like a thunderclap on Thursday morning. The 8.4% month-over-month decline brought the annualized sales rate to 3.91 million units, badly missing consensus estimates. Because existing home sales are counted at closing, the January figures largely reflect contracts signed in November and December — a period when the 30-year fixed mortgage rate hovered near 6.15% to 6.22% before dipping slightly in early January.

Regionally, the damage was widespread but concentrated. Sales fell across all four major Census regions on a monthly basis, with the South and West absorbing the deepest blows. The South, which accounts for the largest share of U.S. home transactions, saw particularly acute weakness as buyers pulled back from elevated prices in Sun Belt metros that had been pandemic darlings just two years ago.

The inventory picture offers no relief. While the number of homes available for sale dipped from December's levels, the 1.22 million units on the market at the end of January still represented a 3.4% increase from a year ago. At the current sales pace, that translates to a 3.7-month supply — well below the 6-month threshold that economists consider a balanced market. Homes are also sitting longer: the average days-on-market stretched to 46 in January, up from 41 a year earlier.

The central irony of today's housing crisis is that prices keep climbing even as transaction volumes crater. The median sale price of $396,800 in January was up 0.9% year-over-year, marking the highest January price ever recorded. For context, the median national home price for all of 2025 was $414,400, itself a record.

Yun pointed out that housing is technically the most affordable it has been since March 2022, as measured by NAR's Housing Affordability Index — a composite of median income, median home prices, and prevailing mortgage rates. Wage gains have been outpacing home price appreciation, and the 30-year fixed rate has fallen from roughly 7% a year ago to 6.11% as of the week ending February 5, 2026.

But these headline affordability improvements mask a deeper structural problem. First-time buyers, who historically drive the market's engine, remain largely shut out. They accounted for 31% of January sales, up slightly from 28% a year ago but still well below the historical norm of roughly 40%. The only price tier showing year-over-year sales growth is the $1 million-plus segment, while homes priced below $250,000 — the entry-level tier where first-time buyers concentrate — saw the steepest declines. As Yun put it bluntly: "Renters are not participating in housing wealth."

Perhaps the most frustrating dynamic for would-be homebuyers is the persistent gap between Federal Reserve policy and what they actually pay at the closing table. The Fed has cut the federal funds rate from 4.33% last summer to 3.64% in January 2026 — a cumulative reduction of nearly 70 basis points over roughly six months. Yet the 30-year fixed mortgage rate has barely budged, falling only from around 6.26% in late November to 6.11% in early February.

The disconnect stems from the bond market. Mortgage rates are pegged not to the fed funds rate but to the 10-year Treasury yield, which stood at 4.16% as of February 10 — down from 4.29% just a week earlier but still elevated by historical standards. The 2-year Treasury yield, at 3.45%, reflects the market's expectation that the Fed's cutting cycle may be nearing its end. That spread between the 2-year and 10-year — currently around 71 basis points — suggests bond investors are pricing in sticky long-term inflation and persistent government borrowing, both of which keep a floor under the longer-duration yields that matter most for mortgages.

The bottom line: even if the Fed delivers another quarter-point cut at its next meeting, mortgage rates are unlikely to fall meaningfully below 6% without a significant decline in inflation expectations or a flight to safety in Treasuries. For a buyer financing a $400,000 home with 20% down, the difference between a 6.1% rate and the sub-3% rates of 2021 adds roughly $1,200 per month to the mortgage payment — a gap that no amount of marginal rate trimming can close.

In a telling divergence, publicly traded homebuilders have been performing well even as the existing home market deteriorates. D.R. Horton, the nation's largest homebuilder by volume, traded at $165.97 on Thursday, up 1.3% on the day and well above its 50-day moving average of $152.94. Lennar Corporation rose 1.5% to $122.77, while luxury builder Toll Brothers — set to report earnings next Monday — hit $162.30, touching a new 52-week high of $165.62 intraday.

The SPDR S&P Homebuilders ETF (XHB), which tracks a broad basket of housing-related companies, has surged from a 52-week low of $84.48 to $120.35, gaining roughly 42% over that span. The ETF trades at a P/E ratio of 18.5x, reflecting investor confidence that builders can continue to profit even in a structurally impaired market.

The bullish thesis rests on a simple observation: when existing homeowners refuse to sell — locked into sub-4% mortgages they secured during the pandemic — new construction becomes the only game in town. Builders have responded by offering aggressive incentives, including mortgage rate buydowns and closing cost credits, that effectively create a two-tier market. But even the builders face headwinds. Homebuilder sentiment has been falling amid rising input costs, and the industry has been lobbying the White House for a federally backed "rent-to-own" program to help absorb what has become the largest surplus of new-home inventory in 15 years.

If homebuilders are weathering the storm, mortgage lenders are taking on water. Rocket Companies, one of America's largest mortgage originators, plunged 6.6% on Thursday to $17.37 — its worst single-day decline in months. The stock has fallen from a 52-week high of $24.36 and now trades below its 50-day moving average of $20.16, with earnings due on February 26.

Rocket's slide reflects the broader bind facing the mortgage industry: origination volumes remain depressed because so few existing homes are changing hands, while the company's negative EPS of -$0.03 over the trailing twelve months underscores how thin margins have become. With the January sales data confirming that the transaction drought is deepening rather than easing, the path to profitability for pure-play lenders looks increasingly uncertain.

The mortgage lending sector is caught between two forces that show no signs of reversing. On one side, the "lock-in effect" — in which the roughly 80% of existing homeowners with mortgage rates below 5% refuse to sell and take on a new loan at 6%+ — continues to suppress the supply of existing homes. On the other, elevated rates make refinancing activity negligible, removing what was historically the industry's most reliable profit center. Until mortgage rates fall decisively below 5.5%, a threshold that most economists don't expect before late 2027 at the earliest, lenders face a structurally impaired business environment.