July 18, 2024

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Competition in the housing market is cooling off. Here’s why

4 min read
Competition in the housing market is cooling off. Here's why

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More homeowners are listing their homes for sale — but properties are taking longer to sell as potential buyers face high prices and interest rates.

New listings from home sellers jumped in May, up 13% from a year ago, according to the latest market report by Zillow.

“You have an increase in sellers coming back on the market,” said Orphe Divounguy, a senior economist at Zillow.

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But with buyers not returning to the market, many of those new listings are just adding to inventory. The number of homes on the market rose 22% compared to last year, Zillow found.

“Homes are staying on the market for a bit longer because the sales are not keeping up with the flow of homes coming on the market,” Divounguy said.

‘The market is slowing down’

Almost two-thirds (61.9%) of homes listed on the market in May had been for sale for at least 30 days without going under contract, according to a new analysis by Redfin. About 40.1% of homes that were for sale in May had been listed for at least two months without going under contract, Redfin found.

“The market is slowing down. Homes are taking longer to sell and that allows inventory to accumulate on the market,” said Daryl Fairweather, chief economist at Redfin.

Yet despite the recent jump in supply, “we’re still starved for inventory in the for-sale market,” said Divounguy. The housing inventory in the U.S. still 34% below pre-pandemic levels, according to Zillow.

“We’re short nationwide of about 4.3 million homes,” he said. “We’re still in a housing unit deficit.”

Homebuyers are waiting on lower mortgage rates

While mortgage rates could “change pretty quickly” or “on a dime,” said Fairweather, buyers are unlikely to see big movement in the near term. The Fed held rates steady at its June meeting and now anticipates just one rate cut this year. Its next meeting is July 30-31.

“There’s no right answer for homebuyers who are deciding whether to wait or not,” Fairweather said. “It’s just up to chance when mortgage rates drop. Nobody really knows when that will happen, so it’s hard to plan your life around that.”

What to do if you’re a buyer or a seller

Other markets are still in favor of home sellers as inventory remains tight, Divounguy said. Not only do many homeowners have record home equity, they also have low mortgage payments.

If a home seller needs to move this year due to upcoming life changes and their area is experiencing high levels of unsold listings, they may need to be prepared to cut their asking price to draw interest.

“Price cuts sell homes,” he said.