Why competition in the housing market is cooling off

More homeowners are listing their homes for sale, but properties are taking longer to sell as potential buyers face high prices and interest rates.

New listings from home sellers jumped in May, up 13% from a year ago, according to the latest market report by Zillow.

“You have an increase in sellers coming back on the market,” said Orphe Divounguy, a senior economist at Zillow.

More from Personal Finance:
Here’s the inflation breakdown for May 2024
How much homeownership costs annually
Biden and Trump both want to extend tax cuts

But with buyers not returning to the market, many new listings are just adding to inventory. The number of homes on the market rose 22% compared with last year, Zillow found.

“Homes are staying on the market for a bit longer because the sales are not keeping up with the flow of homes coming on the market,” Divounguy said.

Almost two-thirds, or 61.9%, of homes listed on the market in May had been for sale for at least 30 days without going under contract, according to a new analysis by Redfin. About 40.1% of homes that were for sale in May had been listed for at least two months without going under contract, Redfin found.

“The market is slowing down. Homes are taking longer to sell and that allows inventory to accumulate on the market,” said Daryl Fairweather, chief economist at Redfin.

Yet despite the recent jump in supply, “we’re still starved for inventory in the for-sale market,” said Divounguy. The housing inventory in the U.S. is still 34% below pre-pandemic levels, according to Zillow.

“We’re short nationwide of about 4.3 million homes,” he said. “We’re still in a housing unit deficit.”

As mortgage rates have remained high and housing affordability has strained household finances, buyers have been unable to enter the market, Divounguy explained.

“Buyers are facing these incredibly high mortgage rates, at least relative to what they were during the pandemic,” said Fairweather, who believes homebuyers might lack the motivation and financial ability to purchase a home.

The 30-year fixed rate mortgage in the U.S. slid to 6.95% on June 13, lower from 6.99% a week prior, according to Freddie Mac data via the Federal Reserve. 

While mortgage rates could “change pretty quickly” or “on a dime,” said Fairweather, buyers are unlikely to see big movement in the near term. The Fed held rates steady at its June meeting and now anticipates just one rate cut this year. Its next meeting is July 30-31.

“There’s no right answer for homebuyers who are deciding whether to wait or not,” Fairweather said. “It’s just up to chance when mortgage rates drop. Nobody really knows when that will happen, so it’s hard to plan your life around that.”

Some markets in the U.S. are seeing a significant increase in unsold inventory. About 60.5% of listings in Dallas, Texas, stayed on the market for at least 30…