March U.S. Existing Home Sales: A Fragile Bottom Amidst Reversing Affordability and Rising Inventory

Core Conclusion

The U.S. housing market remains stuck in a fragile, bottom-bouncing phase. While prior improvements in affordability from lower mortgage rates and slowing home price appreciation provided a potential foundation for recovery, recent rate increases have partially reversed these gains. Concurrently, a persistent and notable accumulation of single-family inventory is suppressing home price growth and sales momentum. Residential investment will continue to be a drag on GDP growth, and the projected moderate recovery faces clear downside risks, particularly from prolonged geopolitical conflict.

Evidence Chain

Affordability Gains Are Eroding, Removing a Key Catalyst for Sales Recovery.

The primary drivers of recent affordability improvements are now fading. Mortgage rates have risen approximately 50bps from recent lows, effectively reversing the affordability gains accumulated over the prior five months. Simultaneously, the pace of home price appreciation has decelerated sharply, with the median sales price increasing only 1.3% YoY in March, down from 2.7% a year ago. This erosion of purchasing power directly undermines the potential for a demand-led sales rebound and supports the tracking estimate for a 1.2% QoQ annualized decline in Q1 residential investment.

Sustained Inventory Buildup in Single-Family Homes Will Prolong the Market's Bottom.

A decisive shift in inventory dynamics is exerting downward pressure on prices and extending the market's stagnation. Single-family home inventories have posted considerable sequential increases for two consecutive months on a seasonally adjusted basis. The months' supply for single-family homes (SA) has risen to 4.5 in March from 4.1 in February, a recent high indicating inventory is accumulating faster than sales. This growing supply overhang will cap home price growth and likely keep sales activity muted for longer than markets may be pricing in, presenting a headwind for homebuilder equities.

Geopolitical Conflict Represents a Defined Downside Risk to Housing Forecasts.

Macro uncertainty is a tangible impediment to the expected housing recovery. The upside risk to the base-case forecast of 3-4% growth in existing home sales for 2026 diminishes the longer geopolitical tensions persist. This external factor introduces a layer of caution beyond domestic cyclical dynamics, negatively influencing broader consumer confidence and the willingness to make large, leveraged purchases, thereby skewing risks to the forecast downward.

Key Risks

• An escalation or unexpectedly prolonged geopolitical conflict, which would further dampen housing demand and overall economic growth expectations.
• Mortgage rates rising more than anticipated, leading to a deeper deterioration in housing affordability and a sharper contraction in sales activity.

Valuation and Trade Implications

Today's data reinforces the view that the housing sector will remain a net drag on U.S. GDP growth in the near term. For asset allocation, this supports an underweight or avoidance stance on cyclical sectors tightly linked to existing home sales and residential investment. Fixed income markets are likely to continue pricing in subdued growth and a patient Fed. Caution is warranted on homebuilder stocks, which face the dual pressure of rising inventory and faltering demand momentum.

Appendix: Key Data Summary

Exhibit 2: Select Existing Home Sales Metrics

Exhibit 8: NAR Housing Affordability Index Context

• The index (100+=More Affordable) had improved from lows seen in 2025 but remains below levels associated with healthier sales volume.
• The recent ~50bp increase in mortgage rates has reversed approximately five months' worth of prior improvement in the index.