The housing market has flipped
How to spot opportunities
It’s official. For the first time since The Great Financial Crisis, the housing market has flipped, and sellers are beginning to panic.
There’s an estimated 34% more homes for sale than there are offers.
Sellers outnumber buyers by 500,000 – which is the largest imbalance on record.
Prices are starting to drop in 61% of the US.
Depending on where you live, there might be a complete reversal in real estate. Homes are sitting for longer and sellers are being forced to negotiate down in the first signs of a “buyers’ market” which creates opportunities for you as a buyer in the near future. So let’s understand what exactly is going on, which areas are seeing the biggest price reductions (or improvements) as realtors like to say, and what analysts are expecting to happen over the next year.
Frozen inventory
Up until recently, the housing market was at a standstill with inventory and transaction volume falling to some of the lowest levels in history.
The main reason for the higher prices is frozen inventory. It all started during the pandemic when interest rates were lowered to stimulate the economy, which led to people locking in mortgages at extremely low rates that were… kind of stupid. If you bought a home from 2020 to 2022, you could lock in a 30-year, fixed rate loan for under 3% or even as low as 2.6%. Adjusting for inflation, that was like being offered free money – the deal of a lifetime. As more people bought up houses, this pushed up housing prices to record highs.
But that rally was unsustainable.Once the Fed raised rates again to combat inflation, mortgage rates shot up beyond 7% – a level we haven’t seen since before the 2008 crash. Monthly payments on a median home doubled, and buyer demand dropped completely.
The people who locked in low rates weren’t willing to sell because to just afford a similar house to what they currently hold, they would have to pay significantly more. This led to an unusual situation in 2024 where buyers stayed out, sellers refused to sell, and the lack of supply even pushed up prices in some areas. But as far as 2025 is concerned, there’s a fear of…
Stagnation in the housing market
Median housing prices are still increasing, but the pace is beginning to slow down.
This is mainly because of higher mortgage rates, lower demand, and high inventory. The typical monthly payment is $2,860 which is just $25 shy of the all-time high. Pending home sales are down 1.7% and 14% of purchase agreements are getting canceled before closing, and surveys show that buyers are more worried about personal finances than bidding wars pushing up prices.
Active listings are up nearly 30% from a year ago. There have been 81 consecutive weeks of YoY inventory gains. Just until recently, we were earlier dealing with a situation where inventory was a problem, so why are more sellers listing their houses on the market now? There are four reasons:
Major life changes like a different job, a divorce, or a growing family could be pushing homeowners to sell the house.
Some homeowners might have high equity and want to cash in on profits.
Some fear that they’re at the top and want to cash out before the market starts to decline from here.
Other assets might be promising higher returns, and some sellers want to diversify by moving their money elsewhere.
These reasons are inducing a sense of urgency which gives buyers the upper hand over sellers. For the first time, buyers can afford to walk away from what they think is a bad deal and wait it out, because prices aren’t shooting up any more. As a result, houses are selling below their list price, on average. Now the typical home is on the market for an average of 50 days as compared to just 33 days back in 2021. Only 28% of homes are selling above list price, down from 50% just a few years ago.
The condo market collapse
While housing prices are getting all the attention, the condominium market is quietly seeing a decline of its own. There are now 83% more listings than offers in this segment! But that doesn’t mean this is a buying opportunity. Here’s why:
The pitch for condos was that they are cheaper and easier to manage compared to family units. What you don’t see in the bargain is that HOA and maintenance fees have been going up for a long time. Depending on the HOA, there are rules you have to follow and restrictions on what you can do with your property, limiting your options. This is unlike a single-family home where the land is yours and you can remodel or expand according to your wishes as long as they are within zoning regulations. As a result, appreciation of values for condos has lagged HOAs by a lot.
All these reasons could make condos cheap to buy but hard to sell.
Where are the largest price drops?
Nationally, median home prices are up just 1.9% from a year ago. But since inflation is at 2.3%, real home prices have actually started to fall. In terms of which areas have been hardest hit:
Oakland, California is down 4.9%
Dallas, Texas is down 4.5%
Jacksonville, Florida is down 3%
Austin, Texas is down 2.5%
Seattle, Washington is down 1.5%
Denver, Colorado is down 1%
These aren’t major price drops to the point where you could call it a “real estate crash,” the picture changes if you look at the decline from their peak in 2022. Austin, Texas is down more than 21% and Oakland is down over 19% (followed by New Orleans, San Fransisco, and Washington where buyers can get double-digit discounts compared to just a few years ago).
Sellers are adjusting to this reality as well – Realtor.com found that the median asking price was up only 0.2% Year-over-Year in late May. It’s effectively flat, suggesting that sellers aren’t trying to push prices higher any more. They’re just optimizing to attract a buyer instead.
Cutting payments instead of prices
There’s another segment that’s seeing aggressive price action lately: Home Builders. But not in the way you think.
Developers have more margin to play with because they are focused on the longer term. They build these homes to sell, and they need to keep the prices high – but they can afford to take a hit on monthly payments. So they use a portion of their profits to buy down the buyer’s mortgage rate, effectively letting the buyer pay more in the form of lower monthly payments.
Think of it like this: If they lower the price of their home from $650,000 to $600,000, that would set a benchmark for every other home they sell in the area and slash future profits. Instead, they simply use that $50,000 to buy down the buyer’s interest rate, from 7% to 5%. This allows them to sell at $650,000, but the buyer gets lower monthly payments and pays a cheaper price effectively. The buyer saves on interest, the home builder sets a higher value for their product, and everyone wins.
No matter where you live, here’s what all of this means for you.
This might be the first time in ages that you can walk away from a deal without panicking that prices will rise if you refuse. There’s no upward pressure on prices, giving buyers negotiating power. Having said that, this isn’t a housing market collapse. It’s more like a flatlining, and it the current prices aren’t a bargain buy – you would still be paying a historically high price despite discounts. If you plan to buy a house, I would suggest locking in a fixed rate on payments that you can afford for the next 7 to 10 years, assuming you can’t rent a similar home for much cheaper.
Buying properties isn’t the only way to create economic value. The no-brainer option for me these days is to simply build out an extra unit on properties that I already own. In 2018, I bought this duplex and found a developer to expand an unused garage into a two bedroom unit for about $200,000. Now I’m able to make another $2,200 a month off of renting it, and if you’re looking for additional cashflow, that’s an option you could consider. This was pretty much the cheapest way I was able to “buy myself” a two bedroom house in Los Angeles.
I got this project done through the company Realm. They get you multiple bids from different contractors whom they work closely with, and then negotiate on your behalf to get you the best possible price. They also make sure that they stick on budget, and everything has been flawless so far. Especially since I live out of state, I literally wouldn’t have been able to do it without them. I’ve been able to negotiate with them to give you $1,000 off if you use this link.
Apart from that, I believe that we’re going to see sales prices soften over the next few years. In the longer run, I think that’s a healthy thing for the economy. If your experience is different or you have any thoughts on this, let me know in the comments below. I’ll see you next week!