With a Million Homes Now on the U.S. Market, Why Aren’t Prices Falling?

This year, for the first time since 2019, a million homes are on the market.

Listings are up more than 7% from last year, According to Realtor.com. Inventory is rising nationwide, with the southern and western parts of the country actually back to 2017-2019 levels! And homes are starting to linger on the market for a while. They’re taking around seven weeks to sell, nationwide. One in five buyers are getting price reductions.

But the availability of homes is uneven. Some cities built too much, too fast, during and past the height of the pandemic. Meanwhile, other cities added few homes. Those markets are tighter now.

And home prices are still rising — just not as fast.

Where Is the Affordability?

The number of listings of homes for sale has gone up. Homes are coming on the market in Utah, in Florida, and in Arizona.

Great. But in most places, the prices are also going up!

Ohio is one notable exception, says the National Association of REALTORS®. It’s affordable even by regular folks’ standards. In Cleveland today, workers earning $60K are buying in easily, and making an average mortgage payment of $1,900.

The Ohio cities of Akron and Youngstown are also relatively inexpensive. The same applies to St. Louis, Pittsburgh, and Salt Lake City. Price tags in major cities in the Carolinas are also coming back down to Earth. Columbus, Des Moines, and Grand Rapids are getting there. And the formerly red-hot markets in and around Austin and Denver have cooled off considerably.

Iowa, Indiana, and Illinois are now offering homes at reasonable prices. West Virginia also has achieved a “balanced” market. That means a $75K salary is enough to get a mortgage on the typical home. (Mortgage lenders tend to expect loan applicants to earn 3X their mortgage payments.)

As for the high-end market, the Las Vegas Review-Journal recently reported on Redfin data showing a record $7 billion in Las Vegas homes currently listed for sale. The median price is $480K. Elevated interest rates are deterring many buyers, according to the Review-Journal. And potential buyers are jittery about the economic context — particularly where tariffs are involved.  

As a Rule, Housing Prices Aren’t Getting Any Lower

Real estate prices haven’t come down. They are only taking a bit of a breather. U.S. home prices have, in fact, risen 4% from last year, although real estate inflation is easing in many markets.

But certainly not all. Buyers in Montana and Idaho have yet to catch a break. Many cities on the east and west coasts are still very pricey. Across the board, the median U.S. sale price is $440K. That’s very steep. Here’s some context. That elusive “balanced” market would offer about half of all listings for under $255K. Our current reality is nothing like that.

And in general, inventory isn’t back to pre-pandemic levels. What’s the holdup?

There’s more than one factor keeping people from selling. Consider the following reasons people might not want to list their homes:

• Some people have paid off their entire mortgages. They are not feeling any urge to sell and get future loans with interest rates at or around 7%. The percentage of deed holders with no mortgages hit 40% in 2023 (up from a third of deed holders in 2010), according to Goldman Sachs.

• Other people do have mortgage balances to pay off. A good number of these deed holders either bought into the market or refinanced during a time of low mortgage rates. And they’d prefer to keep the low-rate loans they currently have.

Some people bought into markets where prices have soared, and are now coming back to Earth. These homeowners might not be able to buy comparable homes today without borrowing massively. So they’re waiting, hoping, trying to hold out long enough to net a profit. That will take a while. Imagine a household situated in one of the Colorado cities that shot up in value in 2021-2022. The family moved in with a mortgage carrying a 4% interest rate. Because the family bought in at the peak, it will take many more years to build up the equity required to buy a different home in this current 7% mortgage market.

Yes, interest rates should drop this year. But not by a lot.

And when rates do drop, competition for homes on the market will likely rise.

Learn more from Deeds.com on how the Federal Reserve’s actions change mortgage interest rates.

Waiting for a Light at the End of the Tunnel?

Who wants a mortgage at a rate that’s quite a bit higher than what they’re paying on their current mortgage? This is why many people are staying put for as long as they can.

The silver-haired lining: a whole generation of baby boomers, some of whom are about to turn 80, are at the age when letting go of their homes will soon be inevitable.

Markets cool slowly. It’s important to remember that real estate markets take months, even years, to cool from peak times. (The gradual decline of prices in Austin, Texas is a good example.)

Very few homeowners have to sell immediately. And even when owners do start showing up in the market with homes for sale, it’s best not to assume prices will immediately fall.

“The number of first-time home buyers in the U.S. is abysmal,” says Sydney Lake for Fortune, due to multiple roadblocks. The current real estate scene is frustrating for many hopeful buyers and sellers alike. No wonder so many people are buying into condo associations, or buying tiny homes, or mobile homes. Modular homes are also worth looking into. Townhomes can be perfect starter homes.

Don’t assume these options are inferior investments. Smaller footprints are fashionable these days, for environmental as well as financial reasons. Many financial experts recommend getting on the ladder rather than waiting, as we simply never know which way markets will go next.