The real estate market is experiencing a surge in new listings, with a 13% increase from a year ago as reported by Zillow. However, this influx of properties is not translating into quick sales due to escalating prices and interest rates. Senior economist at Zillow, Orphe Divounguy, points out that while there is an uptick in sellers returning to the market, buyers are not keeping pace. This has resulted in a 22% increase in the number of homes sitting on the market compared to last year.
Homes are now staying on the market for longer periods, with nearly two-thirds of listings remaining unsold for at least 30 days in May. A study by Redfin found that 40.1% of homes listed in May had been on the market for over two months without being sold. Chief economist at Redfin, Daryl Fairweather, notes that the market is slowing down as homes take longer to sell, leading to an accumulation of inventory.
Despite the recent surge in supply, there is still a shortage of housing inventory in the U.S., with levels 34% below pre-pandemic levels according to Zillow. Divounguy emphasizes that the nation is facing a deficit of about 4.3 million homes. The high mortgage rates and strained affordability have deterred buyers from entering the market, leading to a lack of motivation and financial ability to purchase a home.
Mortgage rates have remained high, with the 30-year fixed rate mortgage in the U.S. at 6.95%. Fairweather highlights that buyers are unlikely to see a drastic change in rates in the near future, as the Federal Reserve anticipates only one rate cut this year. The uncertainty around rate movements makes it challenging for homebuyers to decide whether to wait or make a purchase.
Certain markets in the U.S. are witnessing a notable increase in unsold inventory, such as Dallas and Fort Lauderdale, where the share of listings remaining on the market for at least 30 days has risen significantly. Divounguy mentions that when buyers have more options, they gain bargaining power, presenting an opportunity to negotiate prices below the listing price.
Fairweather advises buyers to be cautious during the home inspection process and to leverage discovered issues for potential repairs by the seller. However, she warns against being overly nit-picky about minor damages like chipped paint. For sellers in tight inventory markets, being prepared to make price cuts to attract interest is crucial, as price reductions have been proven to expedite sales.
The real estate market is currently facing challenges due to an imbalance between supply and demand, leading to extended time on the market and a shortage of housing inventory. Both buyers and sellers need to adapt to the evolving market conditions by considering negotiation strategies, pricing adjustments, and keeping a close eye on interest rate movements to make informed decisions.