In recent months, the US housing market has witnessed a rise in inventory after years of a severe shortage. However, contrary to expectations, potential homebuyers are not showing up to make purchases. The main cause of this downturn appears to be the impact of higher mortgage rates during what is typically the peak season for the housing market.

According to Redfin Corp, more sellers are now reducing their asking prices compared to any time since November 2022 as the growing inventory remains stagnant. The current trend is partly attributed to the fact that mortgage rates have risen above 7%, which has diminished the willingness of buyers to enter the market. Ralph McLaughlin, senior economist at Realtor.com, emphasized that while prices and mortgage rates cannot remain high simultaneously for an extended period.

At the beginning of this year, there was optimism that rate cuts by the Federal Reserve would stimulate the housing market, which had experienced its worst year for sales of previously owned homes in nearly three decades. However, as the economy continued to perform strongly, hopes for interest rate cuts faded, leading to a cold reality settling in the housing market.

Buyers are feeling the strain of high borrowing costs. The average rate for a 30-year mortgage has hovered close to 7% since mid-April, while home prices have continued to climb higher. In the four weeks ending on May 26, the median sale price increased by 4.3% compared to the previous year, reaching a record high of $390,613, according to Redfin.

The impact of these conditions is being felt across various segments of the market. Sales of new homes, which had served as a bright spot in the inventory-constrained market, declined in April. Contract signings for existing homes reached their lowest level in four years during the same month. This pullback has resulted in a growing accumulation of listings that are struggling to find buyers, according to Realtor.com's McLaughlin.

The current spring selling season is proving to be a disappointment, as observed by Lawrence Yun, chief economist for the National Association of Realtors. He had initially expected sales to increase throughout the year. Nevertheless, the impact of this slowdown varies across different regions. Markets in the Sun Belt, such as Florida and Texas, which experienced a boom during the pandemic with an influx of new arrivals, are now cooling down due to affordability issues. On the other hand, metros in the western part of the country, like Seattle and the San Francisco Bay area, have already started to recover from sharper corrections experienced in late 2022.

The data from Redfin for the four weeks through May 26 reveals a year-over-year decline in contract signings of at least 14% in Houston, West Palm Beach, and Atlanta. However, San Jose, California saw an approximate surge of the same nature. Redfin's measure of pending sales showed a nationwide decline of 3.4%.

Real estate agents are feeling the impact of this slowdown firsthand. Don Hackford, a real estate agent in Hendersonville, Tennessee, notes that even booming suburbs north of Nashville are currently experiencing stagnation, with low-ball offers leading some sellers to withdraw their homes from the market. In Florida's southwestern coast, where home insurance rates have soared, the number of active single-family home listings in the Punta Gorda area has doubled in the past year, while the median sale price has dropped by almost $30,000 to $351,000 in April compared to the previous year.

According to Redfin Economist Chen Zhao, price growth in the housing market may slow down in the coming months. However, given the pent-up demand from the Millennial generation, any deceleration is expected to be gradual, providing some continued buoyancy to the market.

In conclusion, the US housing market is witnessing a rise in inventory, but potential buyers are holding back due to higher mortgage rates. The failure of expected interest rate cuts by the Federal Reserve has contributed to this downturn. While some regions are experiencing cooling effects and a buyer's market, others are already beginning to recover. The expectation of a slowdown in price growth in the future may provide some relief, but for now, the housing market remains in a state of uncertainty.