The Unexpected Reason Home Prices Could Drop Soon

This spring’s housing market is already being characterized as another disappointingly slow season, with home sellers outnumbering buyers by the widest margin since tracking began in 2013 and a majority of people waiting for mortgage rates to fall before considering a move.

The number of sellers in the current market exceeds the number of buyers by 33.7% — a significant enough gap to lead to lower prices, according to a new Redfin report. The brokerage uses real estate listing data to track the number sellers, comparing it to an internal metric for buying activity.

In 2024, sellers outnumbered buyers by only 6.5%, and two years ago, homebuyers actually outnumbered sellers. Redfin is now forecasting a 1% drop in home prices by the end of the year, confirming that “the growing imbalance between buyers and sellers is the basis for that prediction.”

The Redfin report said buyers are gaining the upper hand in negotiations, and if the trend continues, home prices would likely fall.

At 6.89% for a 30-year fixed-rate loan, the current average rate is only slightly below year-ago levels. After peaking at 7.79% in October 2023, today’s rates are lower, but not by as much as many were hoping.

Home prices are up nearly 20% since 2021. For the four weeks ending May 25, the median sale price was around $394,000, according to Redfin. With mortgage rates pushing up home ownership costs, the typical monthly payment on a home is $2,860, only $25 off the record high.

What prospective homebuyers are waiting for

Realtor.com reports that most Americans (63%) say mortgage rates would have to fall below 5% for them to consider buying a home.

For current homeowners, it’s hard to even think about moving when rates are this high. Homeowners tend to be reluctant to sell when their existing mortgage rates are lower than what they could get from potential lenders. “The lock-in effect is still very much in effect,” Laura Eddy, vice president of research and insights at Realtor.com, said in a release.

An annual homebuyer report out last week from Bank of America reinforces many of the findings from Redfin and Realtor.com about ongoing housing market challenges and how prospective buyers are responding. “Consumers appear bent on holding off for lower home prices and rates,” Bank of America’s experts wrote.

While Americans haven’t stopped dreaming about moving to new homes, many are delaying home purchases due to tough market conditions. The bank’s survey data shows that the percentage of people “holding off on buying” is at a three-year high. However, their optimism that the market will improve is also notable: 75% “expect prices and interest rates to fall and are waiting until then to buy a new home,” up from 67% a year ago.