The U.S. housing market faced yet another headwind in June as the combination of record-high home prices and persistently elevated mortgage rates pushed sales of previously owned homes to one of their lowest levels in recent memory.
According to data released by the National Association of Realtors (NAR), existing home sales dropped 2.7% from May, reaching a seasonally adjusted annualized rate of 3.93 million units. Analysts had predicted a far smaller decline of 0.7%.
This stark drop underscores the ongoing affordability crisis plaguing the housing market, especially as mortgage rates continue to hover near multi-decade highs. With potential buyers sidelined and current homeowners reluctant to give up low-rate mortgages, June’s figures highlight the structural issues currently hindering market activity.
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Home Sales Dip More Than Expected
The decline in June home sales was significantly sharper than many economists had forecast. Despite being on par with sales levels from June 2024, the current figures reflect a stagnation that belies any seasonal uptick usually expected during the summer buying season.
Lawrence Yun, chief economist at the NAR, pointed to elevated borrowing costs as a major culprit. “High mortgage rates are causing home sales to remain stuck at cyclical lows,” Yun noted. He further emphasized that the housing market remains highly rate-sensitive, with every fraction of a percentage point in interest impacting both affordability and buyer sentiment.
Mortgage Rates Remain Stubbornly High
Mortgage rates have played a pivotal role in cooling housing demand. Throughout April and May, the average rate on the 30-year fixed mortgage breached the 7% mark several times, never dipping below 6.8%, according to Mortgage News Daily. As of late July, rates remain high at an average of 6.77%.
This persistent rate pressure is deterring not only potential first-time buyers but also existing homeowners who would otherwise consider upgrading or downsizing. With many homeowners locked into ultra-low mortgage rates secured during the pandemic-era housing boom, there is little incentive to re-enter the market at today’s higher borrowing costs.
Record-High Prices Compound the Issue
Alongside rising rates, home prices reached a record high in June, further straining affordability. According to the NAR, the median existing-home price climbed to $426,000, up 5.8% year-over-year. This marks the highest median price ever recorded for the month of June.
The surge in prices can largely be attributed to a chronic shortage of inventory. With fewer homes hitting the market and robust demand still persisting in many areas, especially in the South and West, bidding wars remain common in desirable neighborhoods.
“We’re seeing an unusual dynamic,” explained Yun. “Demand is weakening due to high rates, but supply remains so limited that prices continue to rise.”
First-Time Buyers Struggle to Enter the Market
First-time buyers are bearing the brunt of the current market conditions. Stretched by high prices and elevated monthly payments, many are finding themselves priced out altogether. According to the NAR, first-time buyers made up just 26% of all transactions in June, well below the historical average of around 40%.
This drop in first-time participation poses longer-term concerns for the housing market. Without a steady influx of new buyers, the overall mobility within the housing ladder slows, affecting both starter homes and more expensive move-up properties.
The Impact of Low Inventory
A significant factor behind the current state of the market is the lack of available homes for sale. The total housing inventory at the end of June stood at just 1.08 million units, unchanged from May but down 4.4% from a year ago. At the current sales pace, this represents a 3.1-month supply, well below the 5- to 6-month level considered healthy.
Low inventory is not only driving up prices but also leading to intense competition for well-priced listings. In many markets, homes are still selling quickly, often receiving multiple offers within days of hitting the market.
Regional Breakdown
Regionally, the housing market showed mixed results:
- Northeast: Sales rose 1.6% from May but were down 4.3% from June 2024.
- Midwest: Sales dropped 2.3% month-over-month and declined 1.6% year-over-year.
- South: Home sales fell 5.4% from May and were unchanged year-over-year.
- West: Sales decreased by 1.3% month-over-month but increased 1.6% compared to a year earlier.
The South, which has seen substantial growth in recent years due to population shifts and job growth, is now feeling the pressure of overheated prices and waning affordability.
Rental Market Resilience
As buying becomes more difficult, the rental market continues to attract attention. High mortgage rates and steep home prices are forcing many would-be buyers to remain renters for longer. This trend is boosting demand for rental units, particularly in urban centers and growing suburban areas.
However, rental prices are also rising in many parts of the country, albeit at a slower pace than during the height of the pandemic-driven housing crunch. Investors are capitalizing on this demand, with some shifting focus from home flipping to long-term rental holdings.
What Could Turn the Market Around?
Economists and industry experts agree that a meaningful drop in mortgage rates could be the catalyst needed to revive the housing market. Yun stated that if rates fell to around 6%, the market could see a significant uptick in activity. “Our scenario analysis suggests an additional 160,000 renters becoming first-time homeowners and elevated sales activity from existing homeowners,” he noted.
Additionally, increasing housing supply remains critical. This would involve not only encouraging more homeowners to list but also addressing zoning restrictions and labor shortages that are hindering new construction. Policy reforms aimed at boosting housing starts and streamlining approval processes could provide long-term relief.
Long-Term Outlook
While short-term pain persists, the long-term outlook for housing remains cautiously optimistic. Demographic trends, including a large cohort of millennials entering their prime homebuying years, suggest that demand will remain robust over time. However, without improvements in affordability and inventory, the market could remain sluggish for the foreseeable future.
In the meantime, prospective buyers may need to adopt a wait-and-see approach or explore alternative options such as shared ownership, co-buying, or moving to more affordable regions.
Frequently Asked Question
Why did June home sales drop despite it being a peak buying season?
June typically sees higher homebuying activity, but in 2025, sales dropped 2.7% from May due to a combination of record-high home prices and elevated mortgage rates, both of which significantly reduced affordability for many buyers.
How high were home prices in June 2025?
The median existing-home price in June 2025 rose to $426,000, marking a 5.8% increase year-over-year and setting a new record for the month, according to the National Association of Realtors.
What role do mortgage rates play in declining home sales?
Mortgage rates, which hovered around 6.77% in June and spiked above 7% earlier in the year, have a major impact on affordability. Higher rates increase monthly payments, discouraging both first-time buyers and move-up buyers from purchasing.
Why are fewer homeowners listing their homes for sale?
Many current homeowners are “locked in” to mortgage rates secured during the pandemic, often below 4%. The prospect of taking on a new mortgage at nearly 7% discourages them from selling and re-entering the market.
How is the housing inventory affecting home prices?
The total number of homes for sale remains critically low, with just 1.08 million units available at the end of June. This limited supply keeps upward pressure on prices despite softening demand.
What can help revive home sales in the near future?
Experts suggest that a drop in mortgage rates to around 6% or lower could unlock demand. Increased new construction, relaxed zoning laws, and affordability-focused policies may also boost housing activity.
Are there any opportunities for buyers in this market?
Yes. Buyers with financial flexibility may find less competition, more motivated sellers, and potential price negotiations, especially in cooling or less competitive markets. Understanding local trends is key.
Conclusion
June’s dip in home sales serves as a stark reminder of the affordability challenges currently gripping the U.S. housing market. Record-high prices and persistently elevated mortgage rates have created a difficult environment for buyers, especially first-timers. Until rates ease or inventory improves, the housing market may remain stuck in a low-activity cycle, with limited relief in sight. Yet, for those who can navigate these challenges, opportunities do exist. Whether it’s negotiating with motivated sellers, exploring less competitive markets, or locking in rates before further increases, informed and strategic decisions remain key in today’s complex housing landscape.
