More than a third of homes on the market have seen a price drop in May, the highest proportion recorded in 10 years, according to Compass's CEO.
Justin Sullivan/Getty Images
The housing market may be starting to turn a corner, offering frustrated buyers a chance to jump back into the market after a long stretch of dismal prospects.
The looser conditions are arriving after a rocky few years for the US housing market, with home sales tanking to their lowest level in 30 years in 2023 and mortgage rates jumping to multi-decade highs.
Soon, though, buyers re-entering the market may be greeted by better conditions than they faced in 2023.
"We think the housing market is going to improve over the next half of a year," Glenn Kelman, the CEO of Redfin, in a recent interview. "Mostly, we hit rock bottom in the first quarter of 2024, and I would expect the housing market to do a little bit better through the rest of the year."
Here are three signs industry experts say point to more favorable conditions for buyers.
More inventory is finally trickling into the housing market, which could help push prices down. Prospective home buyers have been slammed by a shortage of inventory for the past few years, which has limited their number of options and raised prices.
Unsold housing inventory rose 16% year-over-year in April, clocking at 1.2 million, according to the National Association of Realtors. That's still well-below "desired" inventory levels, but it's an improvement from 2023, when the "lock-in" effect kept sellers from listing their homes as they clung to lower mortgage rates they secured years earlier.
According to Robert Reffkin, the CEO of the real estate brokerage Compass, buyers are also beginning to tap out of the market as they push back against poor affordability conditions. That's helped eased the imbalance of supply and demand.
"We are now seeing more sellers than buyers," Reffkin said, speaking to CNBC this week.
More inventory has the potential to lower home prices as supply and demand rebalance. House prices hit a record high in April, with the median US home price clocking in at $387,600 a year, according to Redfin data.
However, according to Reffkin, 34% of homes on the market have seen a price drop in May. That's the highest percentage recorded over the past 10 years.
Prices are also starting to fall in key metros, like Texas and Florida, which have seen more new home construction than any other states in the country, according to Redfin data.
"The boom is over, in part because many people have been priced out. Now, homes are sitting on the market and price growth is stagnating," the listings site said in a recent report.
The 30-year fixed mortgage rate has declined for most the last six months. Borrowing costs for the most popular US mortgage eased to 7.02% the last week, according to Freddie Mac data, down from a peak of 7.79% in late 2023.
Elevated mortgage rates are a key problem in today's housing market, as they deter both buyers and sellers from making deals.
But mortgage rates, which are affected by interest rates in the economy, could continue to ease as markets gain more confidence in coming Fed rate cuts, Redfin's Kelman said.
The Fed has suggested it won't cut interest rates until it gains more confidence that inflation is headed back to 2%. But inflation now looks to be at a "reasonable" level, Kelman added, with consumer prices cooling to 3.4% in April.
Compass's Reffkin also expects mortgage rates to come down in the coming months. Rates dropping to 5%-6% would make the housing market "explode," but even a 6.5% 30-year mortgage rate would be enough to make the housing market "very strong," Reffkin said.
"We feel reasonably good," Kelman said of the housing market. "I just don't want to have a party here and drink a bunch of champagne … it's just a little bit better, and that's worth noting."
