Ready Buyers Have an Opening in the Housing Market

We can’t ignore the bad news about the U.S. affordability crisis.

High mortgage rates have pushed the cost of buying up again and closed the door on a purchase for some households, forcing others to delay a move.

Zillow’s August data explains it: Home sales dropped 0.6% from a year earlier, while newly pending listings, a more current sign of buyer activity, fell 2.6%. Zillow said the pullback follows a brief period of improving conditions earlier this year, when lower rates helped revive activity. Earlier this year, rising mortgage rates began to erode affordability gains even as the housing market showed signs of renewed momentum.

And for some, it might even be an opening.

Zillow noted that buyers who can make a move today are finding conditions that were scarce during the frenzied years: more homes to consider, more time to decide, and sellers who are increasingly cutting prices to attract buyers.

There were 1.41 million homes for sale nationwide in August, Zillow noted. That’s 3% more than a year earlier, and 26.3% of listings carried a price cut.

“Affordability is putting the brakes on the for-sale market, but it is also changing the experience for buyers who remain active,” said Mischa Fisher, Zillow Chief Economist. “Less competition gives well-prepared buyers a better chance to compare options and negotiate with confidence.”

A Great Strategy

The typical U.S. home value was $369,678 in August, up 1.3% from a year ago, but values barely changed month over month, Zillow noted. The bigger obstacle is the monthly cost: A typical mortgage payment, assuming a 20% down payment and including estimated taxes, insurance, and maintenance, reached $1,897, 2% higher than a year earlier, Zillow said.

It all boils down to preparation for sellers who are battling for the buyers who can make this market work.

Zillow noted that pricing competitively from the start matters when buyers are taking more time.

The broader pattern has been building for months.

Zillow said that in March, rising mortgage rates began to chip away at early-year momentum even as spring activity accelerated. August clarifies that slowdown, Zillow noted. The share of listings with price cuts reinforces the need for a credible list price and a complete, compelling listing from day one, the brokerage noted.

More Choice, But a Supply Gap Remains

The recent gain in inventory is welcome, but Zillow noted that it should be kept in perspective.

The brokerage said that national inventory is still below pre-pandemic levels, and new listings slipped 7.9% from July. Zillow said that more existing homes for sale can improve a buyer’s experience in the near term, but it cannot fill the country’s deep shortage of homes all by itself.

Zillow estimates the U.S. is short 4.7 million homes and that closing that gap requires more homes of many kinds: apartments, townhomes, duplexes, accessory dwelling units, and manufactured homes.

Modernized zoning and faster permitting can help communities add those options where people need them, Zillow said.

“The immediate challenge is high mortgage rates, but the enduring challenge is a lack of homes,” Fisher said. “A healthier housing market will require policies that make it easier to build enough homes for the people who need them.”