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Why Housing Prices Continue to Rise Even When Sales Drop YoY
June 26, 2025
The housing market presents a paradox that’s puzzling both buyers and industry professionals alike: home sales have dropped by a significant year-over-year, yet prices continue their upward trajectory. At first glance, this seems counterintuitive. Conventional wisdom suggests that when fewer homes are being sold, prices should decline. However, the real estate landscape today is shaped by a complex mix of factors that defy traditional market expectations.
At the heart of this trend lies a fundamental issue—lack of inventory. The market is still grappling with a chronic shortage of homes, a problem that has persisted and even worsened post-pandemic. Builders have faced continuous challenges, from soaring material costs to labor shortages, which have slowed new construction. Additionally, existing homeowners are reluctant to list their properties. Many of them locked in historically low mortgage rates during the pandemic-era boom and are now hesitant to trade up or down in a higher-rate environment. This combination has resulted in a remarkably tight housing supply, creating pressure that keeps prices elevated even as sales fall.
Inflation has played its part too. Although broader inflation rates have started to cool, the cost of building a home remains high. Everything from cement and steel to compliance and labor is more expensive today, and developers have little choice but to pass these costs onto consumers. Rather than sell at thinner margins, many developers are opting to delay projects altogether, which only exacerbates the inventory crunch. As a result, the homes that do make it to the market are priced at a premium, keeping average price points high across the board.
Another contributing factor is the changing makeup of the buyers themselves. Institutional investors and large real estate funds have become increasingly active in the market, acquiring properties as income-generating assets rather than places to live. This wave of bulk-buying has reduced availability for regular homebuyers, driving competition and pushing up prices, even as overall sales volumes drop. At the same time, individual buyers have become more selective, focusing on high-quality properties in desirable locations. While this shift has led to fewer transactions, it’s also led to higher-priced ones, which distorts the average market figures.
Mortgage dynamics also play a critical role in this scenario. The current interest rate environment has effectively frozen many homeowners in place, creating what economists call a “rate lock” effect. Those who refinanced or bought homes at 2–3% mortgage rates in previous years are unwilling to move now that rates have doubled. This keeps existing inventory low, fueling further scarcity. For new buyers, even with reduced sales activity, the fear of missing out on long-term appreciation—especially in growing urban or tech-centered markets—continues to drive price resilience.
Regionally, the picture is even more nuanced. While some suburban and rural markets are experiencing cooling, many urban centers are staging a comeback. Cities with strong job growth, infrastructure investment, and cultural appeal are attracting renewed interest. These areas are seeing rising prices despite declining national sales figures, highlighting a market that is rebalancing rather than retreating.
Finally, there's the psychological factor. Sellers are still anchored to the valuations they saw during the peak of the market boom. Few are willing to accept lower offers unless forced by circumstance. On the other side, buyers remain cautiously optimistic, expecting property values to hold or rise over the long term. This cautious confidence on both ends creates a slow-moving, high-priced market, even in the face of declining transaction volume.
In conclusion, the housing market in 2025 isn’t crashing—it’s evolving. The decline in sales reflects a market in transition, not one in free fall. Prices remain resilient due to deeply rooted structural issues, investment behaviour, and consumer psychology. For policymakers, investors, and homebuyers alike, understanding these underlying dynamics is key to navigating what continues to be one of the most complex and consequential sectors of the economy.