Home prices are under pressure, but don’t count on a crash
Higher inventory has helped slow price growth, but sellers who can wait for more favorable conditions are starting to walk away, keeping prices elevated.
Key points:
- Buyers may have gained the upper hand, but if recent history is a guide, that doesn't mean sales volume is about to pick up.
- "Stubborn sellers" prevent home prices from falling very much, even when the laws of supply and demand would suggest otherwise.
- The mortgage rate lock-in effect also continues to be a factor, as more than half of current homeowners still have mortgage rates below 4%.
Decisions in residential real estate are often based on market data — sometimes conflicting, often confusing. Housing Market Decoded, authored by economists and other market experts, helps put the data in context so you can make sense of the numbers.
Homebuyers may have taken the driver's seat in the housing market, but so far, they're not stepping on the gas.
There is no question that negotiating power has swung in homebuyers' favor over the first half of 2025. Nationwide, there are almost 30% more active listings on the market than last year. Home price growth is decelerating and even turning negative in some regions. The May Case-Shiller report showed the national price index up only 2.3% year-over-year, while the seasonally adjusted national index declined 3.4% — its third straight month in the red. Month-over-month changes have turned even more sharply negative in expensive West Coast markets like Seattle and San Francisco.
Does this mean another crash, or even a major price correction, is coming?
Probably not. To understand the current ebb in home price growth, consider the recent cooldown from late 2022 to early 2023, when higher mortgage rates put homebuyer demand on ice. The parallels between then and now begin with affordability — like today, the double-whammy of high mortgage rates and high prices two years ago locked many buyers out of the market. And as demand slackened, inventory built up. That put downward pressure on prices, as sellers felt the heat of competition from similar listings down the block, and the remaining buyers began to flex their negotiating prowess.
But sales volume never picked back up. Existing home sales fell to an annualized rate of about 4 million by the end of 2022, a level last seen in the aftermath of the global financial crisis, and total home sales remained near 4 million in 2023 and 2024.
The housing market's immune system
If demand never hit the gas, why did prices stop falling, stabilize and return to modest growth?
Real estate prices tend to be "downward sticky" — that is, they resist falling very much, even when we might expect the laws of supply and demand to pull them down. The mechanism that makes this possible is simple: stubborn sellers. Homeowners track their home's value and keep tabs on what similar homes are selling for — the Zestimate made Zillow a household name for good reason.
Add to that the lock-in effect: Most outstanding mortgage debt carries rock-bottom interest rates, a precious keepsake from 2020 and 2021. In the first quarter of 2025, 71% of mortgaged homeowners had an interest rate below 5%. For just over half, it is below 4%!
For many homeowners considering a sale, keeping that low rate outweighs the cost of waiting for more favorable conditions, and they're willing to walk away. That's what we saw in late 2022 and throughout 2023 as price growth cooled, dissuading many owners from selling — and new listings plunged. Like a body's immune system neutralizing a threat, this natural response by homeowners refusing to sell in a buyer's market restored balance, and the remaining sellers faced less competition.
Early signs of the immune response today
In early 2025, the market experienced many of the same conditions seen in 2022, causing home prices to cool once again: Mortgage rates soared back up near 7%; buyers were spooked by tariff announcements, dampening demand right as the spring selling season should have kicked off; and several months of solid growth in new listings helped accumulate an ample supply of homes for sale.
But now there are early hints of the housing market's immune response kicking in once again: Sellers are starting to opt out. Realtor.com reported an unprecedented 47% year-over-year jump in delistings in May, and the pace of new listings growth slowed from 9.2% in April to only 6.2% in June.
Homeowners are realizing they're no longer selling in a favorable market, and those who can sit it out have begun to do so. The ultimate measure of selling pressure, though, is the tally of active listings, and while that is still up substantially year-over-year, its growth slowed from 32% in May to 29% in June. I expect this growth rate to continue to moderate in the months ahead. On this concluding chart, you can see the dramatic reversal in inventory growth that occurred in the winter of 2022-23 once sellers pulled back enough to counteract falling demand.
A similar process is underway today. Yes, price growth will cool, and prices will drop a few percentage points in high-inventory markets. But don't count on a crash.
Jeff Tucker is the Principal Economist for Windermere Real Estate, where he analyzes economic data to explain its impact on national and regional housing markets. He previously spent five years at Zillow, researching housing market trends, authoring reports and presenting to policy makers. The views expressed in this column are solely those of the author.