Are Slowing Home Prices Sending Us Into a Buyer’s Market?

As more homebuyers pause while waiting for prices and mortgage rates to cool, some sellers are having to drop their asking prices.

In June, nearly 7% of sellers cut their asking prices. That’s the highest share since November 2022, according to Redfin. It’s also the first time since before the pandemic that the typical home has sold below asking price during the spring housing market season. At the same time, however, the median sale price hit another record high of $397,250, pricing many prospective buyers out of the market. 

It’s been a sluggish spring homebuying season, as high mortgage rates continue to weigh on buyer demand. In May, the number of home sales fell 0.7% from the previous month and 2.8% on an annual basis, according to the National Association of Realtors.

“The housing market is struggling to gain momentum in an elevated mortgage-rate environment,” said Odeta Kushi, deputy chief economist at First American Financial Corporation. “Higher mortgage rates have a negative impact on both supply and demand — pricing out buyers who lose purchasing power and keeping some potential sellers rate-locked in.”

But there are signs that the housing market may be slowly rebalancing after a tumultuous few years. On a nationwide basis, inventory levels are gradually improving as homes stay on the market for longer, indicating a slightly less competitive housing market. 

Highly motivated sellers have become more flexible on asking prices in order to attract buyers, especially in areas where property insurance has skyrocketed, like Florida, said Erin Sykes, chief economist at Nest Seekers International. 

As home price growth slows and housing inventory accumulates, buyers may finally see more options and better affordability. 

Now that we’ve reached the midpoint for 2024, I spoke to experts to find out what they think is in store for the housing market going forward.

Why were home sales so slow this spring? 

It’s typical to see a significant uptick in home sales during the spring and early summer. The end of the school year makes it a practical time for families to move, as opposed to making their children switch schools midyear. The warmer weather also makes it easier for people to tour properties. But over the past few years, things haven’t been all that typical. 

Home sales have seen little improvement since last year and are still sitting at a near 30-year low, according to Lawrence Yun, chief economist at the NAR. 

Mortgage rates and home prices are simply too high, and many would-be homebuyers have opted to stay in hibernation mode rather than brave the spring housing market. 

Toward the end of May, mortgage applications were still 10% below last year’s pace, according to a recent survey from the Mortgage Bankers Association.

Homeowners who need to sell their properties quickly have little choice but to adjust their asking prices to attract buyers.

Factors affecting today’s housing market

Today’s housing affordability crisis goes beyond just high mortgage rates. It’s a combination of factors, including elevated borrowing costs, rising home prices and limited housing supply that have pushed homeownership increasingly out of reach. 

Mortgage rates remain high

Rising mortgage rates have plagued the housing market for more than two years. At the start of 2022, the average rate for a 30-year fixed mortgage was close to 3%. Since then, that number has increased significantly (even climbing above 8% last fall) in response to high inflation and a series of rate hikes from the Federal Reserve. 

While mortgage rates have fallen since their 2023 peaks, they averaged above 7% throughout the spring, per data from CNET’s sister site Bankrate.

Here’s how rising mortgage rates have affected the monthly payments on a $400,000 house with a 10% down payment.

Home price growth is slowing, but not stopping

During the pandemic, there was a rush of homebuying demand without the supply to match. As a result, bidding wars became the norm and home prices increased by more than 40%, according to the Zillow Home Value Index. 

Since then, price growth has slowed, but not stopped entirely.

Housing inventory has improved slightly since the pandemic, though it’s still far from optimal, said Keith Gumbinger, vice president of mortgage site HSH.com. “The combination of somewhat better supply and demand tempered by higher rates has helped price gains to soften,” he added. 

Housing shortages persist

There’s been a nationwide housing shortage for nearly two decades and today’s high-rate environment isn’t helping. 

The majority of would-be home sellers have existing mortgage rates below 5%. If they were to sell their current homes and buy new ones, they’d be facing significantly higher mortgage rates. As mortgage rates fall, we’re likely to see more homes come onto the market. But seeing as most sellers become buyers, that won’t fix the situation entirely.

The other piece of the inventory puzzle is new construction. Even though we saw one of the best years on record for new construction in 2022, the nation is still short an estimated 4.5 million homes, according to Zillow. 

Just as homebuyers are facing elevated mortgage rates, homebuilders are dealing with higher rates for construction and development loans, labor shortages and a limited number of buildable lots. 

What to expect in the housing market for the rest of 2024 

Experts say the housing market is on a long road to recovery. “It’s still a seller’s market, but it could be in a more balanced condition by the year’s end,” said Yun. 

There are a lot of moving parts — mortgage rates, inventory, home prices — in the housing market, but they’re all connected. Based on the current conditions, the housing market’s recovery over the next few years could look a bit like a domino effect, but in slow motion. 

The first domino likely to fall will be mortgage rates. As inflation moderates and the Federal Reserve begins to lower interest rates later this year, mortgage rates should improve. Most economic forecasts call for the average rate on a 30-year fixed mortgage to end 2024 between 6% and 6.5%.

Lower borrowing costs should prompt more sellers to list their properties and (ideally) spark an uptick in new construction. This is already happening: 90% of markets have seen inventory levels improve year-over-year, according to Black Knight. The biggest increases were across Florida, as well as Austin and Denver. 

Accumulating housing supply can push over the third domino: home prices. With more inventory on the market, Yun expects home price growth to stabilize at around 2-3% on an annual basis.

While we’re not in a buyer’s market yet, potential homebuyers have more bargaining power than just a few years ago. Thanks to a slightly less competitive market, you likely won’t need to waive things like inspections or appraisals, which was common practice during the hot pandemic housing market. You may also find some flexibility around asking prices. 

“Home prices have become more negotiable over the last few months,” Sykes said. Coastal markets in Florida and New Jersey are already showing 5-10% more negotiability on list prices, she added. 

And if a seller won’t budge on the price, they may be willing to buy down your mortgage rate using points.

Slower changes are better

While a sudden drop in mortgage rates would certainly incentivize a lot of buyers to come off the sidelines, it wouldn’t immediately solve the housing shortage. 

In fact, buyers flooding the market to compete over still-limited inventory could cause home prices to surge again. 

Ideally, housing prices and mortgage interest rates will move toward an equilibrium at the same pace. It will continue to depend, however, on a variety of economic factors. If the labor market slows and unemployment rises significantly, demand for housing could drop leading to lower prices. Political policies could also come into play, especially with the upcoming general election this year.

How to decide if you should wait or buy a house?

Buying a home is a massive financial (and personal) decision. In today’s housing market, it’s understandable many people are unsure whether it’s the right time to buy. But if you ask someone else, like a real estate agent, whether you should wait or buy a house, know it’s an impossible question to answer. 

For starters, experts recommend against trying to time the housing market. It’s better to base your decision off your own personal and financial circumstances. 

Here’s what to consider: 

What’s your credit like? The higher your credit score, the more likely you are to secure a lower interest rate on your future mortgage. Even a difference of a few tenths of a percentage point can save you tens of thousands of dollars in interest over the long run, making homeownership more affordable. 

Do you have a stable income and job security? Without a stable income, it may be difficult to comfortably afford your monthly mortgage payments and the other costs of homeownership. 

How long do you plan to stay in your home? Home values tend to appreciate over time. The longer you stay in your home, the more you’ll benefit from those value gains. Many homeowners rely on the equity they’ve built up via paying off their mortgage and home price appreciation to fund the down payment on their next property. 

Do you have an emergency fund? Before taking out a mortgage, experts recommend you have an emergency fund that can cover several months of living expenses (including housing costs) in the event of a medical emergency or job loss.