The U.S. housing market continued its cooling trend in May 2025, with year-over-year home price growth slowing to 1.8%, down from 5% in May 2024. This marks the slowest annual increase since the winter of 2012, reflecting a market grappling with high mortgage rates and cautious buyer sentiment.
The spring homebuying season, traditionally a period of heightened activity, has been subdued this year. Elevated borrowing costs have dampened buyer enthusiasm, leading to a more balanced market characterized by increased inventory and moderated price appreciation.
One of the notable shifts in the current market is the rise in housing inventory. According to Realtor.com, the number of homes for sale in May increased by 31.5% compared to the same period last year, marking the 19th consecutive month of year-over-year inventory growth. Despite this uptick, inventory levels remain approximately 14% below pre-pandemic norms.
The increase in available homes has provided buyers with more options, potentially easing the competitive pressures that characterized the market in previous years. However, the surge in listings has not translated into a proportional increase in sales, as affordability concerns continue to weigh on potential buyers.
Mortgage rates have remained elevated, with the average 30-year fixed-rate mortgage hovering around 6.8% in May. These higher rates have significantly impacted affordability, particularly for first-time buyers. Data indicates that first-time homebuyer participation has declined sharply, from 50% of home sales in 2010 to just 24% in 2025.
The “lock-in effect” further complicates the market dynamics. Many existing homeowners are hesitant to sell their properties and relinquish the low mortgage rates secured during the pandemic, leading to a constrained supply of homes and limiting options for prospective buyers.
While the national trend points to a slowdown, regional disparities persist. States like Rhode Island, New Jersey, Wyoming, and Connecticut have reported home price growth rates exceeding three times the national average. Conversely, markets in Florida, Texas, Hawaii, and Washington D.C. have experienced more modest gains, reflecting localized economic conditions and varying levels of housing demand.
In the Midwest, cities such as Indianapolis, Kansas City, and Knoxville have seen seasonal price gains that outperform pre-pandemic trends, indicating pockets of resilience amid the broader market deceleration.
Looking ahead, the housing market appears to be in a state of transition. While increased inventory offers hope for improved affordability, high mortgage rates and economic uncertainties continue to pose challenges. Experts suggest that the market is seeking equilibrium, with rising home inventory and moderated price appreciation potentially creating opportunities for buyers.
However, sustained improvements in affordability may hinge on a combination of factors, including further increases in housing supply, stabilization of mortgage rates, and broader economic growth. As the market adjusts, both buyers and sellers will need to navigate the evolving landscape with caution and adaptability.-