Competition for homes and price appreciation tapered off faster than normal in July as high housing costs continued to stymie shoppers, according to the Zillow market report.
But recent drops in mortgage rates should spur more competition heading into fall, according to Zillow.
“If this relief from mortgage rates continues, we should see more buyers restarting their hunt for a home,” Zillow Chief Economist Skylar Olsen said in a release. “But although rate lock among homeowners is easing, they probably won’t be as motivated to jump back into the market and sell. With housing inventory still scarce, this improved affordability picture could reignite competition and sales as we head into the fall, or at least delay the usual post-summer cooldown.”
Sellers gave up a marked advantage over buyers in July on the national scale, as the Zillow market heat index moved into neutral territory for the first time since December. This marks the first July the national market has been neutral since 2019, according to Zillow; in each of the past two years, the market moved into neutral ground in October.
Among major markets, Denver, Pittsburgh, Indianapolis and Louisville, Ky., lost their advantage for sellers and moved into neutral territory, while Orlando, Fla., became buyer-friendly like the rest of the big Florida metros.
Homes are lingering on the market — even successful listings took almost a week longer to sell in July than last year. While that’s still five days faster than the average pace of sales in the years before the pandemic, it’s still a sign that buyers were much less eager to commit, Zillow said.
Inventory accumulated further in July, and now stands nearly 25 percent above last year’s levels, marking the eighth straight month the year-over-year inventory gap has widened. Compared to pre-pandemic norms, the inventory shortfall shrank a bit and is now down 31.5 percent, the smallest deficit since October 2020.
In an effort to win over cash-strapped buyers, homesellers again cut prices at record levels. More than 26 percent of homes on Zillow received a price cut in July, the highest share for any July since at least 2018, when the dataset began.
This cooling competition and pricing slowdown could dissipate in August if lower mortgage rates hold, according to Zillow.
By the end of July, lower rates brought the monthly price premium to buy a home, rather than rent a similar property, below $200. That has shrunk from a $247 difference as recently as April. Now lower rates in August are closing the gap even further.
Lower rates aren’t likely to encourage a comparable wave of current homeowners to sell, though. Zillow surveys showed 80 percent of recent sellers were influenced by major life events, such as a change in their household size or working situation. New listings typically surge in spring and then taper off as homeowners aim to sell, buy another house, and be moved in before school and the fall holidays begin.
Home value appreciation slowed to 2.8 percent year-over-year in July, but that could tick back up if the expected surge in demand outweighs an increase in supply, Zillow said.