The Blubber

In the four weeks ending May 25, the median U.S. home-sale price was up 1.9% year over year, but prices are falling in 11 of the 50 largest metro areas, according to Redfin. The steepest declines were seen in Oakland, California (-4.9%), followed by Dallas (-4.5%), Jacksonville, Florida (-3%), Austin (-2.5%), and Seattle (-1.4%).

These regional drops could be a preview of a broader national trend expected later this year. Redfin projects that the median U.S. sale price will flatten in the third quarter before slipping 1% year over year in the fourth quarter, even as mortgage rates remain elevated around 7%.

That would mark a notable shift from recent performance. In the first quarter, prices climbed 3%, and second-quarter prices are on track for a 2% increase. Home values have generally been rising since 2012, apart from a brief dip in 2023 during a strong seller’s market.

The shift is being driven by a growing imbalance between supply and demand. In April, there were approximately 500,000 more homeowners listing properties than buyers in the market—the largest gap since Redfin began tracking the data in 2013. With more listings sitting longer on the market, many sellers have started cutting their asking prices.

“Sellers are realizing we’re in a new market, which is making them flexible,” said Venus Martinez, a Redfin agent in Los Angeles. “A lot of sellers, especially those who may have bought at the top of the market and need to sell, are willing to accept less money for their homes, give concessions to buyers, and even negotiate commissions. Buyers are more likely to be able to negotiate if a home has been on the market for more than a few weeks, or if it has fallen out of contract.”

Despite the likelihood that mortgage rates will remain high, Redfin expects rising wages to help ease affordability pressures later in the year.

The Redfin forecast mirrors one issued by Zillow in April. Zillow had originally expected a 0.6% increase in home values for 2024, but revised that to a 1.9% decline. “The combination of rising available listings and elevated mortgage rates is signaling potential price drops by year’s end,” Zillow researchers noted. “With increased supply, buyers are gaining more options and time to decide, while sellers are cutting prices at record levels to attract bids.”

Still, the outlook could shift again. A sudden influx of buyers could stabilize or even boost prices. But if the slowdown drags on, it may pose broader risks to the economy. Analysts at Citi Research cautioned last week that residential investment—often a leading indicator of recession—is poised to contract this quarter after only modest growth in the first, pressured by stubbornly high mortgage rates.

“Residential fixed investment is the most interest rate sensitive sector in the economy and is now signaling that mortgage rates around 7% are too high to sustain an expansion,” Citi said.