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The U.S. housing market is in a rut…still.
Over the past two years, existing home sales have been at 30-year lows, according to data from the National Association of Realtors. And things don't seem to be improving. In May, existing home sales grew by just 0.8%, the smallest monthly increase since 2009. Meanwhile, sales of new homes decreased by 13.7%, the lowest seasonally-adjusted rate in seven months, according to the U.S. Census Bureau.
In many ways, things have never looked so dismal for buyers. But, dig a little deep and there's green shoots of recovery to be found.
What's causing this current stagnation? The short answer: expensive mortgages. Housing demand began cooling in 2022 when the average interest rate of a 30-year mortgage soared above 7%. That’s the highest rate seen in two decades. Borrowing costs have retracted slightly since then, to 6.77%, but that’s a far cry from the sub-3% rates of 2020-21. With rates staying at historic highs, demand has not bounced back.
So, one might expect after years of buyers staying away from mortgages, prices will have retracted, which could reignite demand. Not quite.
The U.S. has a housing shortfall of 3.8 million, according to a report by Realtor.com. This is partially due to the 2008 crash, which triggered a collapse in new construction. Over the past 15 years, roughly 1.23 million homes were built annually —18% fewer than the average from 1968–2000. To make things worse, elevated mortgage rates have created a “lock-in effect” where homeowners with fixed rates have been reluctant to move, thus tightening supply even more.
As a result, the past decade has been described as a seller's market, where demand has exceeded supply. So, even as mortgages have skyrocketed, sellers have kept the upper hand.
“There is still a nationwide housing shortage, and homeowners are not in a distressed position,” said Lawrence Yun, chief economist at the National Association of Realtors, in a note.
Indeed, average sale prices in April were 50% higher compared to the same period in 2020, according to the S&P CoreLogic Case-Shiller Home Price index.
“Sellers have held a lot of the power at the negotiating table because of tight supply and often multiple offers or bidding wars,” Ali Wolf, Zonda’s chief economist, said in a note.
So, between high borrowing costs, supply shortages and rising house prices, it's not surprising that sales are at a 30-year low.But, last year, new-home construction outpaced household formations for the first time since 2016, according to Realtor.com.
At the same time, 500,000 more sellers have come to market over the past two years according to Redfin, a number which has trended downward since record keeping began in 2013.
“Some people are relocating, such as moving from Florida to North Carolina," explained Wolf , meaning they are increasing the supply pool without immediately pulling from it. Others are buying new builds, thus pulling from the new housing stock but also adding to the resale supply, she added. “We also just have some people that are sick of putting their lives on hold. They may have locked in a low interest rate and hoped that mortgage rates would be lower by now, but since they aren’t, they are finally in a place that they are willing to sell,” she said.
Due to this surge, sellers now outnumber buyers by a ratio of 3-to-1, the largest margin to date. This is partially why the inventory of unsold housing climbed to $698 billion as of April, the largest value since Redfin’s record keeping began in 2012.
So, despite sluggish demand, are we actually in a buyer’s market after all? Well, it depends how you look at it.
Looking at the “months supply” metric — the hallmark of whether or not we are in a buyer's or seller's market — we are not there just yet. The U.S. had 4.4 months supply in May, a figure that describes how long it would take for buyers to burn through all listings available at current demand levels. Typically, when supply exceeds six months, the market is considered to be a buyer's.
Despite this, there are various clues that buyers are already taking back negotiating power.
Prices remain at record highs, but the rate of appreciation has slowed. The April 2025 Home Price Index (HPI) report from First American Data & Analytics, found house prices rose by 0.4%, the slowest annual rate since 2012.
Corroborating these findings: In May 2024, 6.4% of home sellers cut their asking prices — the highest share since November 2022, according to a Redfin report. Additionally, the median age of active listings reportedly rose to 46 days that month, indicating that homes are staying on the market longer. Redfin estimates that U.S. house prices will drop 1% by the end of the year.
“If we return to a buyer’s market across the country, housing dynamics will be much different than where they are today. We could see even more homes on the market with price cuts and longer days on market,” said Wolf.
However, Yun noted that, yes, a buyer’s market will induce more homebuyers, but prices would decline only “temporarily” and in the “certain markets”—those where supply is exceeding demand. For example, buyer’s markets in Austin, Texas, and Jacksonville and Tampa in Florida, have already led to prices falling.
It’ll take mortgage rates dropping “measurably” to embolden buyers and for substantial sales growth, said Yun. At that point “the housing market will heat up again—unless there is active new supply from new-home construction,” he added.
The Federal Reserve’s roadmap for cutting interest rates will play a major role in determining when mortgage rates begin to fall. Goldman Sachs $GS, Citigroup $C, and Wells Fargo $WFC have each forecast that the Fed will cut rates by 75 basis points in 2025, beginning in September, Reuters reported this week. This is expected to trigger a drop in mortgage rates, but to what extent remains unclear. Morningstar analysts forecast the Fed to cut rates by 100 basis points this year, but they don’t expect this to impact 30-year mortgage rates considerably in 2025. Instead, they see a more sizable drop to 5.75% coming next year.
