Is the Housing Bubble Finally Losing Pressure?

The past few years have been a whirlwind for homebuyers, from a pandemic-driven housing boom to inflation-induced interest rate hikes that made borrowing increasingly expensive. As it stands today, many people looking for an abode are getting clobbered by a one-two punch: arm-and-a-leg home prices and stubbornly elevated mortgage rates.

That means, for many Americans, going to open houses is basically worth it only for the complimentary canapés, a consolation snack while they restrain their homeownership ambitions until better market conditions arise (fingers crossed).

The spring season, typically the housing market’s busiest, hasn’t provided much cause for optimism: Existing home sales fell 0.5% in April from March, according to the National Association of Realtors. Home sales for each month fell to their weakest since 2009, when the Great Recession was in full swing following the subprime mortgage crisis. In February, JPMorgan analysts were muted about the US housing market’s prospects, writing it was “likely to remain largely frozen through 2025.”

But a notable new report last week from Redfin argued that some air may be let out of the bubble soon, much to the advantage of prospective buyers. The big reason, according to the brokerage’s analysis: Sellers now outnumber buyers by nearly half a million, the biggest gap on record since 2013.

So, could the most favorable ratio for buyers in over a decade give them enough leverage to close deals and even bring prices down? Let’s take a look (and, if not, there’ll always be the canapés).

The Boom That Brought Us Here

First, a quick catchup on the forces that brought us to this place.

During the pandemic, housing demand went through the roof. As Federal Reserve Bank of San Francisco researchers explained, that was thanks mainly to the massive shift to remote work, a “key factor explaining why U.S. house prices grew 24% between November 2019 and November 2021.”

San Francisco Bay-area tech workers could suddenly take their high incomes and buy homes in cheaper (for them; sorry, locals) Austin, Texas, or Denver, Colorado. Wall Street professionals could do the same in Miami or Tampa Bay, Florida.

By 2022, Federal Reserve Board economists estimated that “new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.” Instead, the mushrooming demand prompted the housing market to overheat. In November 2021, for example, there were 2.3 million prospective homebuyers versus 1.4 million sellers, giving the latter a significant market advantage.

In April, five years after pandemic lockdowns, the median US existing home price hit $414,000, a new peak for that month, according to the National Association of Realtors, which noted home prices have risen on a year-over-year basis for 22 straight months.

In addition to increasingly expensive homes, another challenge for buyers emerged in 2022, when the Federal Reserve began hiking interest rates to curb the highest inflation surge in decades. That was back when we were fretting about supply-chain snarls caused by the pandemic (now we fret about supply-chain snarls due to tariff wars).

Mortgage rates, which tend to track interest rates, had been incredibly favorable when the Fed cut interest rates to record lows to stimulate the economy at the onset of the pandemic. They spiked after the Fed kicked off a series of rate hikes in early 2022, however.

These factors helped bring the pandemic housing boom to a halt: Those 2.3 million buyers in November 2021 declined all the way to 1.5 million by November 2022. Now, the number of sellers far outstrips the number of buyers.

Tipping the Scales

Redfin’s new analysis found that there are an estimated 490,041 more home-sellers in the US than prospective buyers, a sharp reversal from the pandemic housing boom.

“The balance of power in the US housing market has shifted toward buyers, but a lot of sellers have yet to see or accept the writing on the wall,” Asad Khan, the brokerage’s chief economist, says in the report. “Many are still holding out hope that their home is the exception and will fetch top dollar. But as sellers see their homes sit longer on the market and notice fewer buyers coming through on tour, more of them will realize that the market has adjusted and reset their expectations accordingly.”

Fretting about tariffs has helped suppress the number of Americans shopping for a home, with a survey finding just under a quarter of them canceled plans to make major purchases because of Washington’s trade-warring and another third delayed plans. That means less competition for the buyers in the field.

Meanwhile, Redfin predicts that home prices will fall 1% year over year by the end of 2025, with the glut of sellers forming the bedrock of its reasoning. 

Unsurprisingly, many of the markets where the balance of power has shifted the most for homebuyers, according to the report, are the same places where the pandemic housing boom occurred.

Of the 50 most populous metro areas in the US, the top buyer’s market is now Miami, according to Redfin. Where it once was flooded with homebuyers attracted to the idea of warm weather and beaches enhancing a work-from-home lifestyle, it now has roughly 21,000 sellers compared with just 7,000 buyers, or a 197% difference.

Another notable metro area is Austin, which drew an influx of tech workers during the pandemic. It has a 124% ratio of sellers to buyers and even saw its median home sale price fall 3% year-over-year in April. Jacksonville and Tampa, both in Florida, as well as Phoenix, Arizona, also experienced year-over-year declines in median home sale prices.

“It’s not uncommon for a buyer to get a home for 5% less than the list price and $10,000 in seller concessions,” one Daytona Beach, Florida-based Redfin realtor noted in the firm’s report.

Highly Rated. Even if the balance of power has shifted, one factor dogging buyers remains stubbornly unfazed: mortgage rates.

Forecasts had initially predicted they would fall this year, based on expectations that the Federal Reserve would cut the benchmark interest rates undergirding a wide swath of lending costs as inflation softened. That hope has been repeatedly dashed due to the economic uncertainty accompanying the Trump administration’s shifting economic policies.

Until the Fed is certain conditions warrant a rate cut, higher interest rates will continue propping up mortgage costs. Another benchmark for mortgage rates, Treasury yields, has simultaneously been driven up because the US credit rating was downgraded over concerns about the country’s swelling budget deficit.

The 30-year fixed mortgage rate as of May 29 was 6.89%, according to the Federal Reserve Bank of St. Louis. Since 2023, mortgage rates have hovered well above 6%, often closer to 7%, at roughly the highest levels in two decades. Redfin expects them to stay there through the rest of the year, predicting mortgage rates will float around 6.8%.

So, while lower housing prices have arrived in some markets and may be on the way in others where buying power has shifted, mortgage rates are likely to remain a relative thorn in the side of buyers due to economic factors far beyond their control. If tariffs are levied on imported goods at the scale the Trump administration has threatened, that may spur more inflation and make it even harder for the Fed to cut rates.

Unfortunately, while real estate agents might be able to get you 5% off the list price for your dream house, they can’t negotiate away the nascent global trade war and Congress’ bipartisan habit of spending beyond its means.