Shift in Housing Market Dynamics

The housing market has undergone a significant transformation in recent years. Homeowners who were once in a position of power due to skyrocketing housing values and a shortage of homes on the market are now facing pressure to lower their prices or walk away. This change is largely driven by a dearth of home shoppers who can afford to buy and uncertainty about the economy, jobs, and mortgage rates.

Factors Contributing to the Change

Several factors are contributing to this shift. Would-be buyers are becoming increasingly hesitant to purchase homes at what they perceive as unreasonable asking prices. At the same time, new construction is providing buyers with more options, thereby putting additional pressure on sellers to make their homes more appealing. As a result, while the national median home listing price has risen slightly, some metro areas have seen a decline, signaling a reversal in the power dynamic between buyers and sellers.

Impact on Home Sales

The housing market remains in a slump, with sales of previously occupied U.S. homes running about 1.3% below where they were through the first seven months of last year. This decline is significant, considering that last year’s sales were at their lowest level in nearly 30 years. The national median home listing price rose slightly in July from a year earlier to $439,450, according to Realtor.com. However, the real estate listing company found that the most a homebuyer who earns the median U.S. household income can afford to spend on a home is $298,000, assuming a 20% down payment and a 30-year mortgage at a fixed rate of 6.74%. By these criteria, 7 out of 10 home shoppers are priced out of the market.

Homes Linger on the Market as Sales Slow

The housing market has been in a rut since 2022, when mortgage rates began climbing from historic lows. The number of homes available for sale sank while prices kept rising. Nationally, more homes are going on sale and remaining unsold longer because buyers have been unwilling or unable to make a deal. Active listings — a tally that encompasses all homes on the market except those pending a finalized sale — increased in July for the 21st month in a row, climbing nearly 25% from a year earlier, according to Realtor.com.

The Tide Turns Slowly

The inventory of homes for sale across the U.S. has increased gradually as the market has slowed and is now at a level where supply and demand are more balanced. But in states like Texas and Florida, the number of homes on the market has climbed sharply, partly because those states are hotbeds of new home construction. Home shoppers may now have more leverage relative to sellers in the South and West, where home inventory has risen in the single digits, compared to pre-pandemic levels. Conditions are tougher in markets in the Midwest and Northeast, where the supply of homes remains 40% and 50% below pre-pandemic levels, respectively, according to Realtor.com.

Sellers Feel the Pinch and Budge on Price

After roughly two months on the market and three open houses, Doug McCormick’s home has yet to receive a single offer. The retired business owner and his wife initially listed the 4-bedroom, 4.5-bath house located in Evergreen, a mountain community about 30 miles west of Denver, for $1.3 million. They lowered their asking price to about $1.28 million. That, too, failed to bring in a buyer. McCormick, 80, says he’s hoping mortgage rates ease a bit and bring out more buyers. But he’s also considering just renting the property.

When Buyers Are Also Sellers

Lindsay Olesberg and her husband, John, know what it’s like to navigate both sides of the housing slump. The couple listed their 4-bedroom, 3.5-bath home outside Albuquerque for $835,000 in June 2024 after John, a research scientist, got a new job in Texas. The plan: Sell their house, move to Austin and buy a home there. It took more than a year, during which the couple lowered their asking price several times, temporarily took the home off the market and had some offers fall through. In the end, they agreed to sell for $40,000 below their original listing price.

Taking Homes Off the Market

In markets where buyers now have the upper hand, sellers who can afford to wait are often opting to pull their listing rather than be pressured into coming way down on price. Tammy Tullis put her home in the Miami suburb of South Miami on the market in June. But the four-bedroom, 3.5-bath house didn’t receive many offers initially, so she dropped her $2.8 million asking price by $100,000. That helped drive turnout during an open house, but she only received low-ball offers. Last month, the finance consultant took the listing down. She may relist it sooner, rather than later.

Lower Rates Ahead?

The Trump administration has pushed the Federal Reserve to lower interest rates, saying doing so will help the housing market. But homebuyers – and politicians – should keep in mind that the central bank only directly influences short-term rates, while most mortgages are based on the yield of the 10-year Treasury. So, lower mortgage rates wouldn’t be a given, even if the Fed cuts rates in two weeks, as the market expects. And while lower mortgage rates would boost home shoppers’ purchasing power, they also could bring in more buyers, giving sellers less incentive to keep lowering prices.

Conclusion

The shift in the housing market dynamics, with buyers gaining more leverage over sellers, is a significant development. As the market continues to evolve, it’s essential for both buyers and sellers to be aware of the current trends and adjust their strategies accordingly. Whether you’re looking to buy or sell a home, understanding the factors influencing the market can help you make informed decisions.

FAQs

• Q: Why are sellers being forced to lower their prices or walk away?
  A: Sellers are facing pressure due to a dearth of home shoppers who can afford to buy and uncertainty about the economy, jobs, and mortgage rates.
• Q: How has the national median home listing price changed?
  A: The national median home listing price rose slightly in July from a year earlier to $439,450, according to Realtor.com.
• Q: What percentage of home shoppers are priced out of the market?
  A: By the criteria of a 20% down payment and a 30-year mortgage at a fixed rate of 6.74%, 7 out of 10 home shoppers are priced out of the market.
• Q: How have active listings changed?
  A: Active listings increased in July for the 21st month in a row, climbing nearly 25% from a year earlier, according to Realtor.com.
• Q: Are lower mortgage rates expected?
  A: Economists generally expect the average rate on a 30-year mortgage to remain near the mid-6% range this year.