Buyers back off, sellers face reality as slowdown continues
Economic experts warn home sales may begin to slow as concerns about the economy and fluctuating mortgage rates give potential homebuyers pause.
Key points:
- Warning signs are flashing this week with mortgage rates up, loan applications down and days on market rising.
- It’s unclear where mortgage rates will go next — and potential homebuyers are watching rate movement closely.
- With inventory up over last year, buyers have more homes to pick from. Meanwhile, new home construction is slowing.
The national real estate market appears to be shifting into a lower gear as economic uncertainty and rising mortgage rates cause many potential homebuyers to hesitate.
In addition to higher rates, loan applications are down and home construction has slowed, as has home price growth. "A lot of buyers, especially first-timers, are backing off because they're nervous about a potential recession," Redfin Premier agent Venus Martinez said in the company's weekly report.
Last month, typical homes spent 47 days on the market before going under contract, Redfin noted in a separate report — the longest stretch of time for any March since before the Covid-19 pandemic.
"There's a growing disconnect between what sellers think they can get for their homes and the direction the market is actually moving," Redfin Senior Economist Elijah de la Campa said in that report. A recent survey by Realtor.com found that 81% of potential sellers expect to get their asking price or more, but in the current climate, that may be overly optimistic.
"Tariff fears and widespread economic uncertainty are making homebuyers nervous, so if sellers don't lower their price expectations, home sales may slow in the coming months," de la Campa added.
The market could still bounce back
While recent data paints a picture of real estate activity slowing down, this could be a temporary blip that leads to a rebound. What mortgage rates do next will go a long way in determining how potential homebuyers react.
This week's 30-year fixed-rate mortgage averaged 6.83%, up significantly from 6.62% the week before, according to Freddie Mac's latest survey. The past week was a volatile one as a bond sell-off sent the daily mortgage rate soaring above 7%. Rates have calmed down in recent days, with the daily rate pegged at 6.87% on April 17, according to Mortgage News Daily.
"Looking forward, competing economic forces are pulling mortgage rates in opposite directions, making it increasingly difficult to predict where they'll land," said Jiayi Xu, an economist at Realtor.com. "For buyers, the smartest move is to stress-test their budgets across a range of possible rate scenarios to stay prepared — no matter which way the winds shift."
More buyers are considering ARMs
As rates fluctuated last week, mortgage applications dropped 8.5% from the week prior, according to the Mortgage Bankers Association. Purchase applications were also down 4% compared to the previous week, but were 13% higher than the same week in 2024.
Seeing more consumers opt for an adjustable rate mortgage was a "notable change," said Mike Fratantoni, chief economist at MBA. ARMs are typically lower than fixed-rate mortgages at first, but can rise over time.
Housing construction slows as costs rise
Widespread economic uncertainty following the Trump administration's tariff announcements appears to be seeping into the building industry.
Housing starts for single-family homes were down 14.2% in March compared to February, according to new data from the U.S. Census Bureau, and building permits for single-family homes also dropped by 2%.
Builders were already seeing costs rise for materials even before tariffs took effect amid price uncertainty, according to the National Association of Home Builders.
"Builders face persistent supply-side and affordability challenges, from higher material costs to a shortage of skilled labor," said Odeta Kushi, deputy chief economist at First American. "If these tariffs persist, builders will have no choice but to pass on the costs to consumers, who are already struggling with housing affordability."
It's all leading to sluggish home price growth
With demand slowing and inventory rising, year-over-year home price growth is getting closer to flattening. In its four-week rolling average, Redfin pegged annual price growth at 2.6% for the week ending April 13, down from around 5% at the start of 2025.
Redfin estimates new listings are up 11.2% year-over-year while active listings are up 12.3%, indicating those who are ready to buy will have more choices and potentially more leverage, depending on their local market.