After two years of sellers dictating terms in a supply-starved housing market, the balance of power is shifting. Inventory is building, price growth is slowing, and buyers are regaining negotiating leverage—raising the question of whether this represents normalization or the beginning of a correction.
The data shows clear momentum: listings are up double digits year-over-year in most major markets, days on market are extending, and the share of homes selling above asking price has declined sharply. For buyers who spent 2023 and 2024 offering over list with inspection waivers, the change is striking.
What's Driving the Shift
Mortgage rates remain the dominant factor. After climbing above 7% in late 2023, rates have moderated but remain well above the 3-4% levels that fueled the pandemic buying frenzy. The result: fewer qualified buyers and reduced purchasing power for those who remain in the market.
But rates alone don't explain the inventory build. Sellers who delayed listing during the rate spike are now entering the market, accepting that they'll buy their next home at higher rates regardless of when they sell. The psychological barrier of "locking in" a low rate is weakening as homeowners realize their current rate isn't portable and waiting doesn't improve the math.
Homebuilders are also flooding the market with new inventory, particularly in Sun Belt markets that saw explosive growth during the pandemic. Cities across Texas, Florida, and Arizona face inventory levels not seen since pre-pandemic, as builders complete projects started during the boom.
Regional Divergence
The shift isn't uniform. High-cost coastal markets with limited buildable land—San Francisco, parts of Southern California, the New York metro area—still face supply constraints that favor sellers. But even there, the era of instant bidding wars has ended.
Midwest and Sun Belt markets show the clearest buyer advantage. Austin, Phoenix, and Boise—poster children for pandemic-era appreciation—now have inventory levels that allow buyers to take their time, request repairs, and negotiate price concessions that were unthinkable 18 months ago.
What Homebuilders See
Public builders reported softening demand in recent earnings calls, though most remain profitable due to land acquired before the price spike. The concern: if traffic and conversion rates continue declining, builders will respond with incentives that pressure resale home prices.
Several major builders are already offering mortgage rate buydowns, covering closing costs, or reducing base prices to move inventory. Each of those strategies creates a comp that undermines pricing for existing home sellers, particularly for homes that lack the modern features and energy efficiency of new construction.
Normalization or Correction?
The critical question is whether rising inventory and moderating prices represent a return to normal market function or the start of a sustained decline. The answer depends largely on the employment outlook.
Housing markets historically correct when forced selling overwhelms demand—typically during recessions when job losses force distressed sales. The current environment lacks that stress. Unemployment remains low, and the overwhelming majority of homeowners have fixed-rate mortgages with rates well below current levels, providing little incentive to sell at distressed prices.
What's happening instead is a reset of expectations. Sellers are learning that pandemic-era appreciation isn't repeating. Buyers are discovering that patience yields negotiating power. Both sides are adjusting to a market where transactions require compromise rather than capitulation.
The Affordability Ceiling
Even with improved buyer leverage, affordability constraints remain severe. Median home prices are still up 40-50% from pre-pandemic levels in most markets, while wage growth has been far more modest. Monthly payments at current rates are 60-80% higher than they would have been for the same house in 2020.
The market shift benefits buyers mostly at the margin—negotiating a few percent off list price or securing repair credits that were previously unavailable. It doesn't fundamentally solve the affordability crisis that locks out first-time buyers without substantial down payment assistance.
What to Watch
The trajectory from here depends on mortgage rates and employment. If rates decline meaningfully—back toward 5-6%—demand would surge and reabsorb the inventory build quickly. If rates stay elevated and economic growth slows, inventory could continue building to levels that force price concessions beyond what we've seen so far.
Homebuilders, mortgage lenders, and title insurers are already pricing in continued softness. Their stock performance suggests professional investors expect a multi-quarter adjustment, not a quick snapback to seller dominance.
For now, the message is clear: the seller's market is over. What replaces it—balanced market or buyer's market—remains to be determined.
