T
he US real estate market may be showing signs of recovery after two years of declining home sales. According to Lawrence Yun, Chief Economist at the National Association of REALTORS®, the latest housing indicators suggest "the worst of the downturn in home sales could be over." Yun points to rising housing inventory and growing demand as key factors driving this shift.

    Existing-home sales rose 3.4% in October compared to September, marking a nearly 3% year-over-year gain - the first annual increase since July 2021. Home sales increased across all four major US regions last month, with the largest gains seen in the Midwest, where prices were up 7% annually.

    Homeowners are also benefiting from rising equity as home prices continue to climb. Nearly 60% of real estate professionals report selling properties within a month, and many homes are still receiving multiple offers, according to the REALTORS Confidence Index.

    Existing-home prices rose 4% in October, reaching a median of $407,200 compared to last year's $391,600 median. Yun notes that ongoing price gains mean increasing wealth for homeowners nationwide, but also predicts that additional inventory and home building activity will help moderate price increases next year.

    This could improve affordability for home buyers who are stretching their budgets to afford homeownership. First-time home buyers have been hit particularly hard by rising costs, comprising just 27% of sales in October - historically, they make up around 40% of market share.

    Mortgage rates remain elevated, but Yun predicts they will moderate in the low 6% range for 2025 and 2026. This could help first-time home buyers access mortgage financing more easily.

    Home inventory is also on the rise, with a 19% increase compared to last year, marking a 4.2-month supply at the current sales pace - a significant gain in a market that has often been starved of listings. Home builders are optimistic about single-family home construction in the months ahead, anticipating an improved regulatory environment and lower costs for construction loans due to interest rate cuts from the Federal Reserve.

    The new-home market has accounted for a greater share of home sales in recent months as builders offer sales incentives to entice potential buyers. Sixty percent of home builders recently reported using sales incentives, such as buying down mortgage rates, and nearly one-third cut home prices in November with an average reduction of 5%.