The U.S. housing market remains sluggish, according to data released by the Mortgage Bankers Association (MBA) on November 20.

The MBA’s Purchase Index stood at 136 last week, marking a 2.7-point increase from the previous period but still hovering near its lowest levels since the 1990s. Similarly, the Refinance Index came in at 541.9, also at historical lows, underscoring the ongoing weakness in the housing market. Despite the Federal Reserve’s recent rate cuts, the housing market has shown limited signs of recovery, prompting questions about whether a deeper crisis could be on the horizon.

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A Key Driver of Market Weakness : Supply Shortages

The current slowdown in the U.S. housing market is largely driven by a shortage of housing supply. According to the latest data from the National Association of Realtors (NAR), the months’ supply of existing homes stands at 4.2 months. While this represents a significant improvement from the 1.6-month low recorded in early 2022, it merely brings supply back to pre-pandemic levels, which were already constrained.

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Interest rates are another critical factor. During the 2020 pandemic, the Federal Reserve sharply reduced the federal funds rate to stimulate the economy, leading 30-year fixed mortgage rates to fall to historic lows of 2.5% to 3%. This enabled many homeowners to lock in mortgage rates at 4% or lower.

However, over the past two years, the Fed’s aggressive tightening to curb inflation has pushed 30-year fixed mortgage rates to a peak of 7.2% in May 2023. These elevated rates have discouraged homeowners from listing their properties and deterred prospective buyers due to increased borrowing costs, creating a dual challenge that has weighed on the housing market.

High Interest Rates Likely to Prolong U.S. Housing Market Slump

In September, the Fed implemented rate cuts to support the softening labor market, signaling the potential for 8–10 more rate reductions. This move briefly brought 30-year fixed mortgage rates down to 6.1%, their lowest level in nearly two years, sparking modest activity in the housing market.

However, stronger-than-expected economic data over the past two months led the Fed to adopt a more neutral stance during its November meeting. This shift caused markets to reassess recession risks and temper expectations for further rate cuts.

Moreover, following Donald Trump’s victory in the presidential election, his proposed policies on tariffs and immigration are expected to drive inflation higher and expand the federal deficit. These factors have contributed to the 10-year U.S. Treasury yield climbing back to approximately 4.4%, with 30-year fixed mortgage rates rising to 6.7%. As a result, the housing market has returned to a state of stagnation.

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Looking ahead, the combination of high mortgage rates, elevated home prices, and limited housing supply is likely to keep both buyers and sellers in a wait-and-see mode. The U.S. housing market is therefore expected to remain subdued for some time.