Rising inventory and dwindling demand across the United States have led to the accumulation of a record $698 billion worth of homes for sale, the highest dollar amount recorded by Redfin since the real estate brokerage started tracking data in 2012.
It is terrible news for homeowners who might have bought their homes at stellar prices during the pandemic and are now unlikely to fetch the same amount reselling their property. But it is good news for prospective homebuyers who, despite still being burdened by historically elevated mortgage rates and rising costs, are likely to benefit from price drops very soon.
Why It Matters
For years until now, a chronic, widespread lack of inventory played a crucial role in bringing up home prices across the country. During the pandemic homebuying frenzy, spurred by low mortgage rates, buyers fought for the limited number of listings available, engaging in bidding wars that sent prices to the roof.
When mortgage rates suddenly shot up after the Federal Reserve started its aggressive rate-hiking campaign to lower inflation in 2022, higher monthly payments had the effect of discouraging buyers and locking existing homeowners into their homes, exacerbating the supply shortage.
Three years on, homeowners have stopped waiting for mortgage rates to come down: they are now flocking the market with their listings, adding much-needed inventory to the market, but buyers still cannot afford the purchase or are being cautious about it in times of growing economic uncertainty. The result is that homes are sitting idle on the market, forcing sellers to offer price cuts to lure in buyers.
What To Know
Not only are there nearly $700 billion worth of listings currently in the market, up 20.3 percent from a year ago, but also more than $330 billion worth of these can be considered “stale.” This is according to Redfin, and it means that these properties have sat idle on the market without going under contract for 60 days or longer.
This pileup of unsold inventory is reflected in the current mismatch between sellers and buyers, with the first outnumbering the latter by nearly 500,000, the real estate brokerage found.
Inventory has been rising in recent months, to the point that, in April, there were a total of 1,965,532 homes for sale in the U.S. market, up 16.3 percent from a year earlier. Of these, 670,083 were new homes, up 6 percent from April 2024.
While there is enough pent-demand in the country to find a buyer for every one of the homes available, this is not what is happening. Mortgage rates are still hovering around the 7 percent mark, with the 30-year fixed-rate mortgage at 6.89 percent as of May 29, according to Freddie Mac.
And home prices, despite declining sales, are still rising across the country: the median sale price of a home in the U.S. was $438,108 in April, up 1.3 percent from a year earlier, said Redfin.
The pace of home price growth has already slowed down significantly in recent months compared to what it was a couple of years ago, and it is unlikely to continue for much longer. In April, the number of homes sold, at 441,689, was down 3.1 percent from a year earlier; and 19.9 percent of these homes were sold with a price drop, up 4.3 percentage points year-over-year.
What People Are Saying
Matt Purdy, a Redfin Premier agent in Denver, said in a press release: “A huge pop of listings hit the market at the start of spring, and there weren’t enough buyers to go around.
“House hunters are only buying if they absolutely have to, and even serious buyers are backing out of contracts more than they used to. Buyers have a window to get a deal; there’s still a surplus of inventory on the market, with sellers facing reality and willing to negotiate prices down.”
Chen Zhao, Redfin’s head of economics research, said in a press release: “The record-high dollar value of all homes listed for sale is one way to quantify this buyer’s market. Not only are there more homes for sale than there have been in five years, but the value of those homes is higher than it has ever been.”
What Happens Next
Redfin, which at the very beginning of the year still expected home prices to continue growing this year, though at a slower pace than previously reported, has now changed its predictions for the coming months.
“We expect rising inventory, weakened demand, and the prevalence of stale supply to push home prices down 1 percent by the end of this year, which should improve affordability for buyers because incomes are still going up,” Zhao said.
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