The U.S. housing market is in a strange place right now. If you’re trying to buy or sell a home, you’ve probably noticed that things feel a little off. Prices are high, mortgage rates are stubbornly stuck around 7%, and yet, one in three homes on the market has had its price cut.
What’s going on? Is this a good time to buy? Should sellers be worried?
The Big Picture
According to Mike Simonsen, founder of real estate analytics firm Altos Research, the U.S. housing market is “underperforming.” That’s a fancy way of saying it’s not doing as well as it could be.
Right now 33% of homes listed for sale have had their prices tanked. That’s up from 31% at this time last year. Sellers are realizing that buyers aren’t biting like they used to, meaning they’re being forced to lower their asking prices to attract interest.
Worse, even though the Federal Reserve has started cutting interest rates, mortgage rates are still hovering around 7%. For many buyers, that’s just too high. It’s making them think twice before jumping into the market.
And there are more homes on the market now than there were last year. In fact, there are currently 637,000 single-family homes sitting unsold, up 13% from last year. More supply usually means more options for buyers and more pressure on sellers to cut prices.
Affordability Is Still a Big Problem
The U.S. is in the middle of a housing affordability crisis. For years, the U.S. hasn’t built enough homes to keep up with demand. That’s kept prices high even as mortgage rates have risen.
During the pandemic a lot of people put off buying homes. Now they’re ready to buy but painful home prices and rates are making it all the more difficult. Soaring costs are not helping either: everything from construction materials to labor has gotten more expensive, yanking up new homes prices.
All of this has created a perfect storm where many people simply can’t afford to buy a home. And even those who can are being cautious, waiting to see if prices or rates will come down.
A Buyer’s Market in the Making?
Altos Research’s data shows the market is shifting in favor of buyers—but slowly.
When a lot of homes have their prices cut, it’s often a sign that prices across the board could start collapsing as it suggests sellers are feeling the pressure to tame their expectations.
Meanwhile, more homes are hitting the market and staying there longer. This gives buyers more power to negotiate. If a home has been sitting unsold for weeks, the seller might be more willing to trim the price.
But demand is weaker with mortgage rates at 7%. In January there were 52,000 newly pending contracts, down from 56,000 last year.
This is the million-dollar question (literally). Will prices keep sliding? Here’s what the data suggests:
- Short-Term Outlook: Prices could dip further this spring. Simonsen predicts that by the end of February, we’ll see the most price reductions in years. That’s good news for buyers, though not so great for sellers.
- Long-Term Outlook: It’s cloudy. Though some measures show prices are still up a bit (the median price of newly pending sales is $384,700, up 2% from last year), there’s no strong upward momentum. Simonsen says the risk is “to the downside,” meaning prices are more likely to tank than soar.
But affordability is slowly growing. In the last few years incomes have been rising faster than home prices even if it doesn’t feel like it yet. Simonsen calls this “one bright spot” in the data.
What Should Buyers and Sellers Do?
If you’re thinking about buying a home this could be a good time to start looking. Prices are softening and there are more homes to choose from. But don’t rush just yet: mortgage rates are still high, meaning make sure you can comfortably afford the monthly payments.
As for sellers: be realistic about your asking price. If your home has been on the market for a while with no offers, it might be time to downgrade the price. Since buyers have more options now, you’ll need to stand out.
The U.S. housing market is in a period of transition. Prices are starting to come down, inventory is swelling and affordability is slowly improving. Yet with mortgage rates still sky-high, the market is far from booming.
For buyers, this could be an opportunity to find a good deal if you’re patient. But for sellers it’s a reminder the days of eye-popping prices and bidding wars might be over, at least for now.
