The U.S. housing market is undergoing a notable transformation in mid-2025, with increased inventory levels and a slight dip in mortgage rates providing a more favorable environment for prospective homebuyers. This shift marks a departure from the seller-dominated landscape that characterized the market during the pandemic years.
According to recent data, the average 30-year fixed mortgage rate has declined to 6.67%, the lowest since early April. This decrease follows a series of rate hikes that had previously dampened buyer enthusiasm. The drop in rates has coincided with a surge in housing inventory, offering buyers more options and negotiating power.
In May 2025, the housing inventory rose by 31.5% year-over-year, marking the 19th consecutive month of annual growth. This increase has been particularly pronounced in Southern and Western metro areas, such as Denver and Austin, where the easing of the pandemic-era “lock-in effect” has encouraged more homeowners to list their properties.
The market’s cooling is also evident in the behavior of sellers. Approximately 19.1% of listings saw price reductions in May, the highest rate for any May since July 2016. Homes are now spending an average of 51 days on the market, six days longer than the previous year, aligning with pre-pandemic norms.
Despite these favorable conditions for buyers, affordability remains a significant concern. Nationwide, median home prices have reached record highs, pushing the typical housing payment to 44.6% of the average household income. To keep within the standard affordability benchmark of spending no more than 30% of pre-tax income on housing, a household would need to earn at least $117,204 annually.
The increased inventory has been met with a cautious response from buyers. Pending home sales dipped by 2.5% compared to last May, hinting at rising mortgage rates impacting buyer interest. However, the recent decline in mortgage rates has led to a 2.7% increase in mortgage applications, suggesting potential improvements in upcoming sales.
Regionally, the market dynamics vary. In the Austin area, new home sales rose by 13.8% in May, marking the third consecutive month of sales growth for local homebuilders. Despite this increase, sales remained below the levels recorded in May 2024. The average new home price in Austin saw a slight increase, and active new home listings rose to 5,862, indicating a more balanced housing market.
In contrast, the Bay Area continues to grapple with high home prices and limited inventory. Despite recent cuts by the Federal Reserve, mortgage rates remain high, hovering in the mid-to-high 6% range. This has not significantly dampened demand or lowered home prices due to continued low housing supply. However, the market is becoming more buyer-friendly than in the immediate post-pandemic era, with increased housing inventory and fewer bidding wars.
The current market conditions have led to a shift in buyer sentiment. More buyers now consider it a good time to purchase a home, signaling a buyer-friendly real estate market. Sellers are adapting by offering mortgage-rate buydowns as an alternative to price reductions, providing additional incentives for buyers.
Looking ahead, economists expect mortgage rates to remain relatively stable between 6% and 7% throughout 2025. While affordability challenges persist, the combination of increased inventory and stabilizing mortgage rates offers a more balanced market for buyers and sellers alike.