US Housing Market Inventory Flood Could Slow to a Trickle

The surge in inventory that is finally putting downward pressure on sky-high home prices across the U.S. is not likely to continue at the pace observed over the past few months, experts say, as sellers realize the current market dynamics are not in their favor.

Realtor.com’s May report showed that new listings lost some momentum in May, growing just 7.2 percent from a year earlier, down from April’s 9.2 percent increase.

“This suggests that sellers continue to be sensitive to market conditions, and we could see overall momentum wane if potential sellers decide to sit out this season,” Realtor.com chief economist, Danielle Hale, told Newsweek.

Why Are There So Many Sellers in the Market?

According to Redfin’s latest data, there were 2,058,065 homes for sale across the country in May, up 14.1 percent from a year earlier. The number of new listings, at 110,637 in the four weeks ending on May 18, was the highest in nearly three years, up 8.4 percent from a year earlier.

But buyers, kept to the sidelines by elevated mortgage rates and sky-high home prices, are not biting: pending sales in the same month were down 2.2 percent to their lowest level for that time of the year in Redfin’s records, which date back to 2015.

According to a recent report by the real estate brokerage, there are currently 500,000 more sellers than buyers in the U.S. market right now. That is because high costs are still scaring off buyers, who are also delaying purchasing a home because of growing economic uncertainty. But it is also because sellers locked-in by high mortgage rates for the past few years have stopped waiting for rates to go down any time soon.

“The data show that buyers have more for-sale options than they’ve had in a while, and also suggest that buyers have more room to negotiate on pricing, at least in markets in the South and West,” Hale said. Markets in the Northeast and Midwest, where the housing shortage is still acute, remain more competitive, favoring sellers over buyers.

While some sellers are still hoping to sell their properties for the same stellar amount a home fetched during the pandemic homebuying frenzy, many are starting to notice that the market has shifted toward buyers.

“As sellers see their homes sit longer on the market and notice fewer buyers coming through on tour, more of them will realize that the market has adjusted and reset their expectations accordingly,” said Redfin Senior Economist Asad Khan in a recent press release.

“Many will be waiting for rates to come down a bit and others may wait for price growth to improve again,” Chen Zhao, head of economics research at Redfin, told Newsweek. “It really depends on each seller’s personal circumstances whether waiting makes sense.”

Is This the End of the Inventory Surge?

According to a majority of experts, inventory will keep rising across the U.S. in the coming months, though it will not necessarily increase at the same pace as recently.

“Firstly, many sellers will be forced by circumstances to sell, and a lot of them will have been waiting for three years for rates to come down,” Zhao said. “Additionally, there are a lot of people sitting on home equity that they use to help with the sticker shock of going to 7 percent mortgage rates.”

The recent rise in new listings may slow down a bit, Zhao said, as some sellers do decide to hold back because prices are getting soft.

“Very few people will be forced to sell because they’re underwater or facing foreclosure,” she said.

Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR), agreed that the very low number of distressed sales in the U.S. housing market indicates that few homeowners are facing mortgage-default situations.

“Consequently, most home sellers are not under financial duress or experiencing desperate conditions. Moreover, home sellers understand that the present housing surplus could shift to a shortage once interest rates decline,” he told Newsweek.

“I expect that we’ll continue to see inventory rise, but with somewhat less velocity as sellers adjust to shifting market balance,” Hale said.

What Does This Mean for Prices?

For Zhao, more options on the market will give buyers more options and more negotiating power, but home prices won’t come down significantly this year. Redfin expects home prices to fall by an average 1 percent nationwide by the end of 2025.

“Things will get slightly easier for buyers as they have more choice and will get a small break on affordability with prices getting softer. However, prices won’t fall much and mortgage rates will stay high,” she said.

“So it’s still a challenging situation, particularly for first-time homebuyers. Sellers will be facing a worse housing market because they’ll be competing against more homes for sale and facing weaker demand, so they might need to lower their prices.”

These price cuts and drops are expected to be most significant in the Sun Belt, where inventory has risen the most.

“Price reductions tend to go hand in hand with available housing inventory, and we see more inventory in Sun Belt markets where construction has been more robust in recent years,” Hale said.

“In some of these markets—areas like Austin, and Denver—price reductions have been sufficiently widespread that we’re seeing some softening in the median for-sale home price as well,” she added. “Sellers in these markets should be aware of the shifting trends.”