With the drop in house prices a whole new housing problem just appeared

Homebuyers finally heard some good news in June: home prices fell during the month for the first time in six years. But lest homebuyers feel a little too giddy, a whole new problem has just materialized.

That is, the number of houses for sale has stopped growing - in fact, it is shrinking for the first time in over a year.

"Although the decline is around zero, this week marks the first time there have been fewer active listings than a year ago over a year ago," notes Danielle Hale, Chief Economist for Realtor.com®, in her analysis of data for the week ending June 24. "It's worth noting that it highlights a key reason why, despite high costs, house prices haven't moved much."

The latest mortgage rate and house price trends

The real estate market seems to be stuck in a constant battle of good news versus bad news for homebuyers.

In one corner is the decline in typical home prices, which were 0.9% lower than last year in the week ending June 24. In June 2022, the average house prices reached a peak of $449,000, while this June, the prices that bring the range to $441,000.

"This means that in June 2023, house prices recorded the first year-on-year decline in our data series, for which trends were available in 2017," Hale explains, adding that prices have been falling for three weeks in a row.

Meanwhile, mortgage rates held up slightly after trending downward for most of June. Rates on a 30-year fixed-rate loan averaged 6.79% on June 1, and for the week ended June 29, the rate dipped to 6.71%, according to Freddie Mac.

Why is the number of houses for sale shrinking?

While overall inventory slowed for the first time in the week ended June 24, newly listed homes have been falling for nearly a year, hitting 51 weeks of declines.

New listings fell 29% this week from a year ago, despite the recent sharp increase in seller confidence.

"Buyers have pulled back from the pandemic-era frenzy as higher mortgage rates cut into the purchasing power of their housing dollars, but existing home sales were largely contained and sellers pulled back even further," says Hale.

Sellers with low mortgage rates locked in from years past and unwilling to trade an affordable monthly payment for a higher payment. In fact, 1 out of every 7 homeowners who stay out of the housing market this year cited mortgage rates as the reason, so an increase in total inventory is unlikely in the near future.

Why are home sales slowing?

The housing market is not only shrinking, but has been slowing down for some time. Homes lingered on the market for 13 more days for the week ended June 24 than last year. This marks 49 weeks longer than it took to sell a home compared to the same week a year ago.

However, in the big real estate picture, homes sold faster than average in June from 2017 to 2019. June 2023 housing data reveals that homes were on the market 43 days – 10 days faster than the 2017 to 2019 time frame.

Will the number of houses for sale continue to shrink?

Homebuyers who come across a surprising flurry of listings during the normally busy summer season are likely to get burned.

Based on current housing market data, Hale expects total 2023 inventory to decline "down for the full year."

"The continued absence of existing home sellers as buyers adjust to a higher mortgage rate environment has made it difficult for inventory to recover," says Hale.

But rest assured for buyers, there is another way to own homes: new homes.

"Market pace varies significantly by local market, and our Hottest Housing Markets report shows that markets in the Northeast and Middle East have the fastest market pace and the greatest buyer interest, even as existing sales in these areas may be held back by tighter inventory. Hale says. "New sales in these areas, however, are climbing."