High mortgage rates and elevated home prices combined to crush home sales in January.

Pending sales, which are based on signed contracts for existing homes, dropped 4.6% from December to the lowest level since the National Association of Realtors began tracking this metric in 2001. Sales were down 5.2% from January 2024. These sales are an indicator of future closings.

“It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said Lawrence Yun, NAR’s chief economist. “However, it’s evident that elevated home prices and higher mortgage rates strained affordability.”

While weather may have been a factor, sales rose month to month in the Northeast and fell in the West, which would have seen the smallest impact of cold temperatures. Sales fell hardest in the South, which has been the most active region for home sales in recent years.

Mortgage rates were also higher in January. The average rate on the popular 30-year fixed loan spent the first half of December below 7% but then began rising. It was solidly above 7% for all of January, according to Mortgage News Daily.

Home prices have been easing over the last few months in certain areas, with more sellers cutting prices, but nationally they are still higher than they were a year ago.

This drop in sales also came despite the fact that the inventory of homes for sales in January, including houses that were under contract but not yet sold, increased by 17% compared with last year, growing on an annual basis for the 14th month in a row, according to Realtor.com.

“More for-sale inventory has the potential to generate more contract signings, but climbing home supply is not evenly distributed across the U.S.,” noted Hannah Jones, an economist with Realtor.com. “Moreover, many areas with high demand see relatively low for-sale inventory, which limits progress towards more home sales.”

Mortgage interest rates dropped again last week, hitting the lowest level in two months, but demand for mortgages didn’t respond. Total mortgage application volume dropped 1.2% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.88% from 6.93%, with points decreasing to 0.61 from 0.66 (including the origination fee) for loans with a 20% down payment.

“Treasury yields moved lower on softer consumer spending data as consumers are feeling somewhat less upbeat about the economy and job market. This pushed mortgage rates lower, with the 30-year fixed rate decreasing to 6.88%, the lowest rate since mid-December,” said Joel Kan, MBA’s vice president and deputy chief economist.

Applications to refinance a home loan, which had been surging through much of January and early February, fell 4% for the week but were 45% higher than the same week one year ago. Last year at this time, mortgage rates were 16 basis points higher.

“Although overall refinance application activity remained fairly weak, FHA refinance applications saw an 8 percent increase over the week,” Kan added.

Applications for a mortgage to purchase a home were flat for the week and 3% higher than the same week one year ago. The re-sale market is seeing more supply, partly because homes are sitting on the market longer. But while there are more options, prices are not easing much, as inventories are still historically low.

Mortgage rates continued to drop to start this week, according to a separate survey from Mortgage News Daily. Over the past 4 business days, the average top tier mortgage rate has fallen by 0.22%. That may not seem like a lot, but rates been moving in a very narrow range for the past month.

“Long story short, bonds are in fashion at the moment,” wrote Matthew Graham, chief operating officer at Mortgage News Daily, noting that when demand rises, rates fall. “The broadest and most common explanations have to do with expectations for a downshift in global economic growth in response to domestic tariffs and cost-cutting efforts.”

Renters looking for a better deal may need to rethink the kind of properties they’re focused on in their search. 

As of January, median single-family home rent prices are up about 41% since before the pandemic, according to a recent report by Zillow. Meanwhile, multi-family rents are up 26% in the same timeframe.

A construction boom of multi-family buildings helped rein in rent prices for apartment units in the U.S., prompting some economists to dub 2025 as a “renter’s market.”

But single-family rentals did not see that same level of construction, keeping the available supply low.  Single-family rent growth also remains strong amid high demand, as high mortgage rates keep would-be buyers out of the for-sale market, Zillow noted in the report.

Multi-family housing often includes many units or separated dwellings within the same building, whereas a single-family rental is often in the form of a detached house.

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The typical asking rent price for a single-family home in January was $2,179, up 0.3% from a month prior, and up 4.4% from a year ago, Zillow found. Meanwhile, the typical asking rent for a property in a multifamily home was $1,820, up 0.2% from a month ago and up 2.7% from a year prior.

The gap between the costs to rent a single-family home versus a unit in a multi-family apartment is the largest difference Zillow has recorded since it began tracking the metrics in 2015.

But while there’s a lack of single-family rentals compared to multi-family properties, “demographics play a huge role here,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.

If you can’t afford to buy a home yet, but need the space, here’s what the high cost of single-family rental housing means for you. 

The millennial generation — those born between 1981 and 1996 — has had a tough time getting into homeownership.

The typical first-time homebuyer in the U.S. is now 38 years old, an all-time high, according to a 2024 report by NAR.

“Renters are stuck renting for longer,” said Orphe Divounguy, an economist at Zillow. 

This means many people are staying renters for longer. Zillow found in a separate 2024 report that the median age of renters in the U.S. is 42, and millennials make up about 31% of renters in the U.S. In Zillow’s analysis, millennials were those age 30 to 44 at the time of the survey.

As homeownership has become “so unaffordable and out of reach,” the cohort has had to find bigger rental properties to accommodate major life changes, such as getting married, and having kids or pets.

The appeal of single-family rentals, experts say, is a homeownership experience without the same costs. That can be meaningful for buyers who are faced with affordability challenges in the for-sale market. Coming up with the down payment can be a hurdle, as well as navigating volatile mortgage rates and rising home prices.

The median sale price for homes nationwide was $375,475 in the four weeks ending February 16, up 3.7% from a year prior, according to Redfin.

Meanwhile, the average 30-year fixed rate mortgage inched down to 6.87% the week ending Feb. 13, per Freddie Mac data. That’s the lowest so far in the year, and down from the latest peak of 7.04% in January.

Factors like “having a strong income, strong credit score and lower debt-to-income ratios” are essential for renters in looking into single-family rental homes, Divounguy said.

Paying down debt can help improve your debt-to-income ratio, which measures your debt repayment obligations relative to your income.

When landlords look at your financials, it helps them gauge how easily you can afford the rent based on your current income.

This measure is even more important for renters looking into single-family rental properties, Divounguy said. If you plan to buy a home in the future, keeping this in check will increase your chances of having an approved mortgage application.

Overall, stay on top of your bills and make sure to keep tabs of your credit reports from the major bureaus to ensure there are no errors that could be problematic when you apply. Having a solid credit history makes you more competitive as a renter, and it can also set you up for success if you ever look at the for-sale market, experts say. 

The U.S. housing market continues to weaken, as potential buyers face stubbornly high mortgage rates, elevated prices and limited supply of listings.

Sales of previously owned homes fell 4.9% in January from the prior month to 4.08 million units on a seasonally adjusted, annualized basis, according to the National Association of Realtors. Analysts were expecting a 2.6% decline.

Sales were 2% higher than January 2024, but are still running at a roughly 15-year low.

This read is based on closings, so contracts likely signed in November and December when mortgage rates came down from over 7% to the 6% range.

“Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve,” said Lawrence Yun, chief economist for the NAR. “When combined with elevated home prices, housing affordability remains a major challenge.”

There were 1.18 million homes for sale at the end of January, an increase of 3.5% from December and 17% from January 2024. Although inventory is gaining, it is still at a 3.5-month supply at the current sales pace. A six-month supply is considered balanced between buyer and seller.

The average home for sale last month spent 41 days on the market. That is the longest since January 2020, pre-Covid.

Tight supply continues to pressure prices. The median price of a home sold in January was $396,900, up 4.8% from the year before and the highest price ever for the month of January. All four regions tracked by NAR saw price gains. About 15% of homes sold above list price, virtually unchanged from 16% in both the pervious month and the year-earlier period.

“More housing supply allows strongly qualified buyers to enter the market,” Yun added. “But for many consumers, both increased inventory and lower mortgage rates are necessary for them to purchase a different home or become first-time homeowners.”

All-cash offers made up 29% of sales, which is historically high but down from 32% the year before. First-time buyers are still struggling, accounting for 28% of sales. That share is unchanged from a year ago, but is well below historical averages of about 40%.

Home sales are faring significantly better at higher price points and falling at lower price points. For example, sales of homes priced between $100,000 and $250,000 dropped 1.2% year over year, while homes priced over $1 million rose nearly 27% from the year before.

Realtors are reporting that buyer traffic in January was weak.

“Realtors are putting more signs up, but the buyers are not coming,” said Yun.

There are signs that the housing market is swinging to favor buyers. However, renewed worries about the economy are holding some buyers back.

On the upside for homebuyers, home price growth has slowed and mortgage rates have retreated from recent peaks.

The median sale price for homes was $375,475 in the four weeks ending February 16, up 3.7% from a year prior, according to Redfin, a real estate brokerage firm. That is the smallest increase in nearly five months.

Meanwhile, the average 30-year fixed rate mortgage inched down to 6.87% the week ending Feb. 13, per Freddie Mac data. That’s the lowest so far in the year, and down from the latest peak of 7.04% in January.

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However, “buyers are still faced with this massive affordability challenge,” said Orphe Divounguy, a senior economist at Zillow.

Mortgage applications for the week ending February 14 fell 6.6% from a week earlier, according to data from the Mortgage Banker’s Association. Experts forecast January home sales data — set to come out Friday — to show a decline.

On top of relatively high costs, some buyers could be having second thoughts as uncertainty about the broader economy creeps in, according to Chen Zhao, an economist at Redfin.

“A lot of it is coming from the White House,” she said of the reasons that have buyers worried.

Some factors in the housing market are giving buyers more room to negotiate prices, according to experts. 

For one, inventory is growing as more owners put their homes up for sale. With more options available, buyers have “a little bit more bargaining power in the market,” Divounguy said. 

According to Redfin data, there were 564,642 new home listings in January, up 1.9% from a month prior and 4.7% higher from a year earlier. New home listings hit the highest level since July 2022.

Some home sellers are cutting their asking prices, too. The typical home is selling for 2% less than its asking price, the biggest discount in two years, per Redfin data.

Some buyers are rethinking their plans given broader economic uncertainty, experts say.

As of mid-February, thousands of workers across multiple federal agencies and departments have been laid off as part of President Trump’s aim to reduce the government workforce.

This can make people who either work directly with the government or are connected through contract work or federal funding “nervous that there could be big changes on the horizon,” Zhao said.

“They are worried about job security,” said Zhao, which takes a home purchase off the table.

“The first thing you might do is hold off on a really big purchase because you’re worried about financial security,” she added.

The anxiety doesn’t stop there — the possibility of trade wars and drastic changes in government spending may leave Americans wondering “what’s next?” Zhao explained.

Trump signed a presidential memorandum laying out his plan to impose “reciprocal tariffs” on foreign nations. The plan allows the U.S. to treat other countries’ non-tariff policies as unfair trade practices that warrant tariffs in response.

For consumers, the prospect of higher prices on everyday items and the potential for inflation to accelerate may make them hesitate to invest in a new home.

If you’ve been in the market for a while and you see a house that you really like, try to negotiate hard on the price and see where it goes, Zhao said.

If the home seller isn’t open to lowering the asking price, see if they can cover additional expenses like closing costs or to pay for the buyer’s real estate agent fees.

Those can be valuable concessions.

Closing costs can run between about 2% and 6% of the loan amount, according to NerdWallet. If you take out a $300,000 mortgage, you could pay from $6,000 to $18,000 in closing costs on top of the down payment.

The average buyer’s agent commission was 2.37% for homes sold in the fourth quarter of 2024, down from 2.45% a year prior, per a data analysis by Redfin. 

If not, check out the new builds market — some builders are offering incentives like “in-house lending” and often provide favorable loan terms like lower rates, experts say.

Mortgage rates dipped slightly last week, but so did mortgage demand, as housing affordability continues to sideline potential buyers.

Total mortgage application volume fell 6.6% for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) dropped to 6.93% from 6.95%, with points increasing to 0.66 from 0.64 (including the origination fee) for loans with a 20% down payment.

“Mortgage rates decreased on average over the week, as markets brushed off unexpectedly strong inflation data. Despite mortgage rates declining, mortgage applications decreased to their slowest pace since the beginning of the year,” said Joel Kan, an MBA economist.

Applications to refinance a home loan, which had been on the rise, dropped 7% for the week but were 39% higher than the same week one year ago. Percentage changes week to week have been large simply because the overall volume of refinancing is so low. The vast majority of borrowers today have mortgages with rates significantly lower than what is now being offered.

Applications for a mortgage to buy a home fell 6% for the week but were 7% higher year over year. Housing affordability continues to weigh on potential buyers, and economic uncertainty, especially regarding the effect of potential tariffs, are only adding to the pressure.

“Purchase applications were down for the week, as buyers remained on the fence, although loosening inventory may help support activity in the coming months,” Kan added.

Mortgage rates moved slightly higher to start this week, but holiday-shortened weeks tend to see more volatility in the bond market.

Fannie Mae and Freddie Mac, two pillars of the U.S. mortgage market, are currently controlled by the federal government. Some in Washington, D.C. expect President Trump to push for the end of their conservatorship.

“We have a mortgage finance system that works really well on the upside, but is it prepared for a downturn?” said Mark Calabria, former director of the Federal Housing Finance Agency from 2019 to 2021. “While I am optimistic about the overall state of the economy, are we putting the taxpayer at risk?”

Fannie Mae and Freddie Mac create financial products that support the mortgage market and reduce risks for investors. These products can influence mortgage rates in the U.S.

The two firms were placed into government conservatorship in September 2008 as the global financial crisis mounted. In the aftermath, many borrowers defaulted on their mortgages and risked losing their homes. Between 2007 and 2010, approximately 3.8 million homes were lost to foreclosure according to an estimate from the Federal Reserve Bank of Chicago.

At the time, the Treasury Department extended $100 billion lines of credit to Fannie and Freddie each in an effort to keep them afloat. The Treasury also initiated sweeps of their profits in an effort to get taxpayers’ bail out money back.

“In my mind that was a good decision,” said Moody’s economist Mark Zandi.

In the intervening years, Fannie and Freddie paid $301 billion to the Treasury. As the process unfolded, the value of Fannie and Freddie’s stocks plunged to basically nothing.

In 2019, the government ended the sweep of Fannie’s and Freddie’s profits, laying the groundwork for the two mortgage giants’ return to private markets.

“The number one constraint on us was lack of capital. Fannie and Freddie were leveraged about 1,000-1, which meant they had almost no capital,” said Calabria.

Both firms are today known as government-sponsored enterprises, or GSEs. Fannie Mae was chartered as a government agency in 1938 and became a private entity in 1968. Freddie Mac was created as a private company by an act of Congress in 1970.

Mark Zandi estimates that without an explicit or implicit government backstop of the mortgage giants, mortgage rates could rise by by 60 to 90 basis points. Proponents of privatization like Calabria say it wouldn’t raise rates, and could even make them go down.

Watch the video above to learn how the end of Fannie’s and Freddie’s conservatorship could affect home buying in the U.S.

It’s still too soon to fully calculate the cost of the Los Angeles wildfires, but one thing is clear: The cost of insurance will go up, and that will affect not just the value of LA real estate but of real estate across the nation.

The losses from those wildfires may seem unimaginable now, but they were actually already part of a calculation that climate risk experts have been modeling recently as they attempt to measure the effects of climate change on home values.

By 2055, 84% of all U.S. homes may see some drop in value, totaling $1.47 trillion in losses, according to an analysis by First Street, a climate-risk firm.

“Climate change is no longer a theoretical concern – it is a measurable force reshaping real estate markets and regional economies across the United States,” said Jeremy Porter, head of climate implications research at First Street.

According to the report, insurance is expected to grow by a national average of 25% over the next 30 years, with 14% of that due to current underpricing of risk and the additional 11% due to increasing climate risk over that time period. The property value impact on average is only about -3% nationally, but there are some areas that are expected to lose a significant amount of their value. Roughly a dozen counties in Texas, Florida and Louisiana could see home values cut in half, according to the report.

Dave Burt, founder of DeltaTerra Capital, is also calculating climate risk to real estate. 

DeltaTerra is an investment research and consulting firm that provides institutional investors and others with tools to measure and manage financial risks related to climate change, according to its website.

In the next five years, at least 20% of U.S. homes will be devalued in some way by the effects of climate change, Burt said. 

“In the past, insurers have not increased prices because of these increasing weather events,” he said. “That’s all falling apart now because of the fragility of the system and some of the insurance market failures that we’ve seen in just the last few years.”

Burt was one of the few to predict the risks in the subprime mortgage market nearly two decades ago, and he made a lot of money betting against those loans. Burt says he sees a similar pattern emerging with climate change. As growing climate risk forces the insurance industry to reprice higher, home values will drop because when the cost of owning a home rises, its value falls, he said. The correction, he said, will be severe.

“We think that those 20% of markets could be down 30% over the next five years in value, which is very similar to the 2007 to 2012 great recession experience,” Burt said.

And he’s not alone. Sen. Sheldon Whitehouse, D-RI, warned of the risk at Treasury Secretary Scott Bessent’s confirmation hearing.

“The most immediate danger of a major economic collapse is going to come through the insurance industry,” Whitehouse said in January. “We’re seeing it already. The fires in LA are making it worse out in California, but it’s occurring nationwide … where you can’t get mortgages, you can’t sell properties at value.”

While experts have been warning of this for several years now, their predictions are coming true faster than previously expected.

“Growing climate-related disaster risk has accelerated much more rapidly,” said Ben Keys, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “Ultimately, assets are going to have to find a new equilibrium in order to clear the market.”

And foreclosures add to that. After Hurricane Sandy in 2012, foreclosures in affected areas rose by 46%, and after the 2008 floods in Ames, Iowa, foreclosures jumped 144%, according to First Street.

The mortgage market is not unaware of these rising risks. 

Fannie Mae declined an interview request for this story, but CNBC spoke with their chief climate officer, Tim Judge, in 2023 on the same subject, as the mortgage giant was beginning to study climate risk in underwriting.

“The amount of climate change is not necessarily always priced into the market, and consumers aren’t really aware of what that’s going to do to insurance premiums going forward,” Judge said.

Two years later, Fannie Mae still doesn’t account for climate risk in its underwriting at the property level.

“The decisions that Fannie and Freddie make are guiding the mortgage market away from pricing climate risks directly,” Judge said.

In the meantime, DeltaTerra’s Burt is betting again.

“What we’re doing is we’re helping clients integrate our understanding of the roadmap going forward into hedging strategies,” Burt said. “That can be either avoiding the most at-risk securities. It can also be hedging with mortgage credit derivatives.”

Rising insurance costs will be the main factor in home price declines but not the only one. Some communities might increase taxes to pay for resilience measures. Maintenance and energy costs may also go up.

Despite all of this, the Trump administration on Friday ordered FEMA staff to immediately stop implementation of the Federal Flood Risk Management Standard. This is the standard that ensures that public buildings, including schools, as well as bridges, roads, utilities and other infrastructure that are damaged in a flood will be rebuilt in a way that would make them less vulnerable to future flooding.

— CNBC Senior Producer Erica Posse contributed to this piece.

As U.S. home equity climbs, owners are more likely to face capital gains taxes from selling property. But a lesser-known tax strategy could help shrink your bill, experts say.

When selling your main home, there’s a special tax break that shields up to $250,000 of profits for single filers and $500,000 for married couples filing jointly. However, you need to meet certain rules.

An increasing number of home sellers are exceeding those thresholds, according to a 2024 report from real estate data firm CoreLogic. Nearly 8% of U.S. homes sold in 2023 exceeded the capital gains tax limit of $500,000 for married couples, up from about 3% in 2019, the report found.

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Those percentages were even higher in high-cost states like Colorado, Massachusetts, New Jersey, New York and and Washington, according to the CoreLogic report.  

Exceeding the $250,000 and $500,000 exclusions is “becoming more common,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Home sale profits above the $250,000 or $500,000 thresholds are subject to capital gains taxes of 0%, 15% or 20%, depending on your taxable income.

The excess profit above $250,000 or $500,000 could also trigger so-called net investment income tax of 3.8%, depending on other investment earnings, according to the IRS.

Many home sellers don’t realize they can reduce capital gains by increasing their “basis,” or the home’s original purchase price, according to Mark Baran, managing director at financial services firm CBIZ’s national tax office. 

You can increase your basis by adding “capital improvements,” such as renovations, adding a new roof, exterior upgrades or replaced systems.  

Your “adjusted basis” is generally the cost of buying your home plus any capital improvements made while you own the property.

“That adds up over time and can bring them fully within the [$250,000 or $500,000 capital gains] exclusion,” Baran said.

However, you cannot add home repairs and maintenance, such as fixing leaks, holes, cracks or replacing broken hardware, according to the IRS.

You also can reduce your home sale profit by adding fees and closing costs from the purchase and sale of the home, according to Lucas.

The IRS says some of these expenses could include:

• Title fees
• Charges for utility installation
• Legal and recording fees
• Surveys
• Transfer taxes
• Title insurance
• Balances owed by the seller

“Maybe that gets you an extra few thousand” to reduce the profit, Lucas added.

Sentiment among the nation’s single-family homebuilders dropped to the lowest level in five months in February, largely due to concern over tariffs, which would raise their costs significantly.

The National Association of Home Builders’ Housing Market Index (HMI) dropped a sharp 5 points from January to a reading of 42. Anything below 50 is considered negative sentiment. Last February, the index stood at 48.

“While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said NAHB Chairman Carl Harris, a home builder from Wichita, Kansas.

Of the index’s three components, current sales conditions fell 4 points to 46, buyer traffic fell 3 points to 29 and sales expectations in the next six months plunged 13 points to 46. That last component hit its lowest level since December 2023.

Builders are already facing elevated mortgage rates. The average rate on the 30-year fixed was over 7% for January and February after earlier being in the 6% range. Home prices are also higher than they were a year ago, weakening affordability further.

While President Donald Trump’s tariffs on Canada and Mexico, originally proposed to take effect in early February, were delayed roughly a month, builders are still expecting higher costs.

“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB chief economist Robert Dietz.

Homebuilder sentiment had been gaining steadily since August on the expectation of lower mortgage rates and, as the builders noted, potential pro-development policies. Single-family housing starts are trending lower than they were a year ago, despite a lean supply of existing homes for sale.

The drop in builder sentiment, coming right before the all-important spring market, signals potentially even less supply in the market. Several homebuilders have noted the pullback in buyer demand in recent earnings reports.

“Despite Federal Reserve actions to lower short-term interest rates, mortgage interest rates remained elevated in the fourth quarter, which impacted buyer demand as homebuyers continue to face affordability challenges,” said Ryan Marshall, CEO of PulteGroup, in its fourth-quarter earnings release.

The share of builders lowering prices dropped to 26% in February, down from 30% in January and the lowest share since May 2024. Other sales incentives also fell.

This may be because incentives are becoming less effective at attracting buyers, since high prices and high rates have reduced the pool of buyers for whom these benefits move the needle, according to the NAHB.

When a buyer is solidly priced out, no incentive helps, and with rates remaining higher, the pool of marginal buyers may be shrinking. Offering incentives to buyers who would buy regardless of price or rates is of diminishing value for builders.