For the past few years, sellers have dominated the U.S. housing market, but recent trends suggest this may be changing. A new report from Zillow reveals that one in four sellers reduced their home prices in June to attract buyers. With home prices nearing record highs, buyers are increasingly reluctant to meet elevated asking prices, contributing to a significant drop in pending home sales, which hit a record low last month.
As more homes enter the market, sellers are encountering heightened competition, prompting many to lower their asking prices.
Seller’s Dilemma
In the past two years, the Federal Reserve has raised its benchmark interest rate to a 23-year high in an effort to combat inflation, making borrowing—including mortgages—more expensive. Consequently, many sellers are hesitant to trade their low mortgage rates for higher ones, choosing to stay in their current homes until rates decline.
This scarcity of homes led to rising prices, with the median existing home price increasing by 5.8% year-over-year in May, reaching a record $419,300, according to the National Association of Realtors. Many homeowners waiting for a drop in mortgage rates to list their homes are now reconsidering, as the Fed has yet to signal any rate cuts.
However, listings rose by 4% from May to June and are up 23% compared to last year’s lows. Despite this increase, home inventories remain about 33% lower than pre-pandemic levels.
A Turning Point for Homebuyers
Mortgage rates are beginning to show signs of moderation. Although the average mortgage payment remains higher than pre-pandemic levels, the current rate for a 30-year mortgage stands at 6.89%, the lowest since March, according to Freddie Mac.
This shift is improving conditions for homebuyers. With decreasing mortgage rates and an increase in available homes, buyers with a $3,000 monthly budget have gained over $20,000 in purchasing power since the spring, according to Redfin.
