The Housing Market Has a ‘Chicken and Egg’ Problem—but Buyers Have Finally Hatched the Perfect Workaround

Anyone who’s tried to buy or sell a home lately is no doubt painfully aware that today’s real estate market has slowed down considerably—but why?

A new Realtor.com® report sums it up as the “chicken and egg” problem. Allow us to explain.

It all starts with mortgage rates—which are about 1 percentage point higher than last year, hovering in the mid-6% range. This is a formidable deterrent not only for buyers, but also for sellers, who feel “locked in” to their current properties (along with the lower mortgage rates they got years earlier).

As a result, even homebuyers who are willing to pay high rates are finding few homes for sale, with May clocking 22.7% fewer new listings than last year.

“Many sellers report being concerned about finding another home, which may cause some of them to put plans to list on pause,” says Realtor.com® Chief Economist Danielle Hale. “But this reduces the total number of options for buyers in the market.”

Home prices continue upward—but not for long

In addition to slim pickings, homebuyers are still grappling with high prices. In May, the median listing price grew to $441,000, up from April’s $430,000.

And odds are, prices will head even higher in June.

“Historically, we typically see home prices top out in June,” says Hale. “I expect this year will be typical in that regard, with home prices hitting their highest level in June and retreating beginning in July.”

In fact, last June, median prices hit an all-time record high of $449,000. But odds are, this June’s home prices won’t surpass that, given annual price growth has tapered off considerably. May’s home prices, in fact, are only 1.1% higher than this same month last year.

“Based on current trends, it’s possible that [home prices] won’t hit the previous year’s peak for the first time in our data,” says Sabrina Speianu, economic data manager at Realtor.com.

While this news should come as a relief to buyers, today’s higher mortgage rates mean they’ll still pay more for a house now than they would have last year—about $280 extra per month, if they make a 20% down payment.

Yet if mortgage costs refuse to fall, home prices will eventually have to come down to compensate—and already are in some cases. Listings with price reductions rose from 10.2% in May of last year to 12.7% this year.

And so good things may come to buyers who wait.

“Sellers appear to be aiming for a relatively high starting point in the market this year and are willing to negotiate if needed,” says Hale.