'Price relief on the horizon' as more home listings hit the market, reports Zillow

Home sellers are rushing back into the market, but buyers are still sitting on the sidelines, new data shows.

According to Zillow’s new Housing Market Report for May 2024, the number of listings increased 8% from the previous month and 13% compared to a year ago.

However, buyers are not keeping pace with the increased supply. Zillow's latest data shows that home sales in May were 6% lower than last year's already weak sales.

While the market isn't balanced yet, it's moving in that direction, says Zillow's chief economist Skylar Olsen

Inventory is 34% below pre-pandemic levels, the smallest deficit in over three years. Meanwhile, nearly a quarter of listings had a price cut in May—the highest share for this time of year since at least 2017.

Sellers just want to move on despite interest rates

The so-called "golden handcuffs"—a phenomenon when home sellers don't want to list their homes to keep low mortgage rates—appear to be loosening despite the fact that interest rates remain high.

According to a Zillow survey, 80% of recent sellers listed their homes not based on dollars and cents but on major life events, such as getting married or having a baby.

“The effects of ‘rate lock,’ owners holding on to their existing homes and low-rate mortgages, appear to be lessening over time, even as most outstanding mortgages have a rate well below what’s currently being quoted on the market,” said Olsen.

Sellers are enthusiastic, but buyers aren’t as motivated, likely due to record housing costs.

Still, Zillow says the higher volume of listings means the U.S. market is “a bit friendlier for buyers and is headed toward ‘neutral’ territory, but sellers still hold a slight advantage.”

Home price growth cools

The supply-demand rebalancing took some heat out of the housing market.

The monthly pace of home value appreciation nationwide slowed to 0.8% in May from 1.2% in April, according to the Zillow Home Value Index. Annual appreciation decelerated to 3.9% year-over-year.

However, home values remain 45% higher than before the pandemic struck. The typical U.S. home is now valued at $360,310, translating to a mortgage payment of $1,931 per month, assuming 20% down.

Zillow forecasts home values to rise just 0.4% in 2024 before dipping 1.4% through May 2025, as record housing costs and increased supply tame home price growth.

Local market conditions vary

Market conditions still favor sellers in hotspots like Buffalo, Hartford, and San Jose based on Zillow's Market Heat Index. Meanwhile, New Orleans, Miami, and Memphis remain more buyer-friendly, according to Zillow.

For renters struggling to save for a down payment, the projected home price declines could offer some relief. However, rental costs keep climbing, up 3.4% annually in May amid high demand.

Olsen forecasts "price relief on the horizon" but acknowledges that the market is particularly complex right now as it seeks equilibrium post-pandemic.

“This environment makes experienced agents all the more valuable for both buyers and sellers,” he says.