Home prices expected to dip as supply and demand collide

Inventory grows, sales shrink

Redfin said cooler prices stem from a widening gap between supply and demand.

Existing-home sales dropped 1.1% in April compared to a year earlier to reach a six-month low. The homes that sold took a median of 40 days — five days longer than a year ago.

Meanwhile, the total number of homes for sale surged 16.7% to a five-year high, with new listings up 8.6% during the year.

The housing market has struggled since mortgage rates began climbing in early 2022. And recent economic uncertainty has further slowed buyer activity, Redfin added.

Redfin economists expect prices to decline nationwide for two main reasons:

• Negotiated discounts: Buyers are negotiating prices down, especially for homes that need work or are located in less desirable areas.
• Lower list prices: As homes sit on the market, sellers are more likely to cut prices or list below comparable properties to attract offers.

Redfin agents recommend buyers target homes that have lingered on the market. These are often ripe for negotiation, including price reductions or seller concessions like rate buydowns or repair credits. Nearly half of current sellers are offering concessions — just shy of record highs.

“A lot of the people selling right now bought in 2021 or 2022, when home prices were near their height,” said Corey Stambaugh, a Redfin Premier agent in North Carolina. “Even though we advise them to list at today’s market value, a lot of them decide to list high to recoup their money. But those sellers face reality once their home has been sitting for a couple weeks without any offers.”

Although a 1% dip in prices won’t radically change affordability, it could help some buyers. Combined with steady wage growth of about 4%, housing is expected to become slightly more affordable.

Still, Redfin cautions that waiting for a price drop may not be worth it.

“We know there’s room to negotiate right now, so that’s the best way to take advantage of the changing market,” said Chen Zhao, head of economics research at Redfin. “And the sooner you buy, the sooner you start to build equity.”

Contract cancellations spike

Redfin also reported that approximately 56,000 U.S. home purchase agreements were canceled in April, or 14.3% of homes that went under contract that month.

That’s the second-highest rate for the month of April since 2017, just behind April 2020 during the COVID-19 pandemic.

Cancellations are rising as buyers face sticker shock, economic anxiety and an abundance of options. With inventory at a five-year high, many are confident they’ll find better homes later.

Redfin agents said buyers should consider submitting backup offers if they lose a bidding war.

“Two of my buyers have won deals this way — where the previous buyer canceled and then we wrote an offer before the home was even back on the market, and the seller accepted,” said Alison Williams, a Redfin Premier agent in Sacramento, California. “It’s a tactic that has been working really well.”

Florida is home to five of the top 10 metro areas for the highest cancellation rates in April.

1. Atlanta – 20%
2. Orlando – 19.4%
3. Tampa — 19.1%
4. Riverside, California – 19.1%
5. Miami – 18.9%
6. Fort Lauderdale, Florida – 18.9%
7. Fort Worth, Texas – 18.7%
8. Las Vegas – 18.6%
9. Jacksonville – 18.4%
10. San Antonio – 18.2%

States like Florida and Texas have been building more homes than anywhere else in the country, and buyers in these locations may feel empowered to walk away, knowing they’ll likely find other suitable options.

Florida, in particular, faces added pressure from rising homeowners association fees, insurance costs and frequent natural disasters, Redfin reported.