More ‘For Sale’ Signs Sparks Cautious Optimism for Existing-Home Sales This Year

Odeta Kushi is deputy chief economist at First American, Santa Ana, Calif.

Existing-home sales increased in November, and First American’s latest Existing-Home Sales Outlook report projects we’ll see another increase to end the year. This modest positive momentum suggests that the housing market is slowly thawing, although activity remains significantly below pre-pandemic levels.

Several factors are working in favor of more sales activity, while others continue to hold it back. As we head into the new year, here’s the good, the bad, and what’s most likely.

The good: affordability, inventory, and demographics are aligning

Affordability is improving, and that matters even if mortgage rates don’t fall much from here. According to our latest Real House Price Index, affordability improved to its highest level in over three years, and the gains were widespread, with affordability improving in most markets on an annual basis. House price appreciation had dipped below the pace of income growth since April 2025, which is slowly improving the monthly-payment math for would-be buyers and helping more households qualify at the margin.

Affordability still isn’t ‘easy’ in absolute terms, but the trend line is supportive of more transactions.

At the same time, inventory is cooperating. In many markets, active inventory is running above year-ago levels, which is a meaningful shift after years of exceptionally tight supply. More listings expand choice, reduce buyer fatigue, and make it easier for deals to come together, especially for buyers who have been willing but unable to find a home that fits their needs and budgets.

Demographic trends represent built-in demand, so when the market gives demographic dynamics a little oxygen, the demand shows up. Many potential first-time millennial home buyers have been waiting for conditions to improve, and even modest gains in affordability can spur that demand back into the market.

If inventory continues to build, buyers who were sidelined by limited options may re-engage, helping convert pent-up demand into actual transactions. And, for households on a life-event timeline, more options can be the difference between waiting and moving.

The bad: the lock-in effect and uncertainty remain real constraints

The golden handcuffs of low mortgage rates are loosening, but they’re not off. According to the latest National Mortgage Database third quarter data, roughly 79% of mortgaged homes still carry a rate below 6%, so selling often means trading a low payment for a higher one—enough to keep many ‘optional’ sellers on the sidelines and limit turnover, even as demand gradually improves.

But housing decisions aren’t driven by rates alone. Moves are often prompted by life events—new jobs, new families, downsizing, retirement—and those needs can eventually outweigh the payment gap. That’s one reason the lock-in effect is gradually easing. In 2025, for the first time since 2020, the share of home buyers with rates above 6% exceeded the share with rates below 3%, reducing the market’s dependence on ultra-low-rate mortgages over time.

Uncertainty remains another headwind. Households don’t need perfect clarity to buy a home, but uncertainty around the economy, inflation, and the path of interest rates can delay big decisions—particularly when monthly payments are already elevated. According to the latest University of Michigan monthly survey of consumers, more than 60% of respondents expect joblessness to continue rising over the next year. That’s why existing-home sales can look like they’re gaining traction one month and stall the next – the market responds quickly to changes in rates and sentiment, and volatility can freeze activity at the margin.

The likely: a gradual thaw, not a sudden breakout

Looking ahead, the most realistic expectation is continued, incremental progress, not a breakout. Affordability is improving because incomes are doing more of the work while home price growth stays cool, and inventory is starting to lift from historically tight levels. But elevated rates and lingering lock-in mean turnover will likely remain below what we’d consider ‘normal,’ keeping the market in a measured, stop-and-go recovery, rather than a strong rebound.

As affordability and inventory gradually improve, more life-event moves—new jobs, new families, downsizing, upsizing—should transpire, even if rates remain elevated. You can’t buy what’s not for sale, so cautious optimism for 2026 hinges on a rising tide of more ‘For Sale’ signs helping spur a few more sales.