Good Signs For Homebuyers: More Supply, Lower Rates, And More Purchasing Power

With home prices continuing to escalate in recent years, housing inventory remaining low, and mortgage rates climbing higher, it’s been a challenging period for homebuyers. But silver linings are beginning to appear in the clouds. New data suggest more favorable conditions for prospective purchasers.

Are we entering a buyer’s market? Will mortgage rates drop further? Has purchasing power improved for home shoppers? For answers and insights, read on.

In this article (Skip to...)

• Are we truly in a buyer’s market?
• Why is housing inventory increasing?
• Why is home buying demand declining?
• Will mortgage rates drop?

4 good signs for home buyers

Redfin recently published new numbers that should provide a hopeful spark to those considering a home purchase, including first-time buyers.

First, it found that the US housing market is shifting in favor of buyers – with 5 months of for-sale housing supply tallied in January. This represents the highest number in six years. New listings represent a good portion of that supply, as well; in fact, new listings have increased 4.2% year-over-year to their highest level for any comparable period in three years.

Second, although home prices jumped 3.7% year-over-year, this was the smallest increase noted since last September.

Third, the typical residential property now takes 57 days to sell. That represents the longest days-on-the-market metric measured in five years. The average home today is actually selling for 2% below the asking price – giving buyers more room to negotiate.

Additionally, Redfin reports that purchasing power has grown: A buyer with a $3,000 monthly budget can now afford a $446,000 home at current mortgage rates (consider that the median price of a home today is $396,900, according to the National Association of Realtors). That means the average buyer has gained more than $7,000 in purchasing power, thanks to mortgage rates dropping from 7.13% to 6.84% at the time of this writing.

How to interpret these findings

The Redfin data indicate a more promising environment for buyers in the weeks and months ahead, the experts agree.

“Three drivers contribute to this outcome: increased inventory, slightly lower mortgage rates, and more negotiating power,” says Albert Lord, founder and CEO of Lexerd Capital Management. “These trends suggest that buyers will experience more favorable conditions in the coming months, especially if supply continues to grow and rates remain relatively stable or further decline.”

Jason Ball, a Certified Financial Planner, says the fact that more homes are on the market now than at any point in the past four years is a big deal.

“Buyers now finally have more choices. They’re not being forced into bidding wars that drive up prices beyond reason. Instead, they have time to shop, compare, and negotiate,” he says. “But perhaps the biggest shift is that sellers are no longer in complete control. We are seeing homes sit on the market longer, and some sellers are offering price reductions and concessions. That means buyers have an opportunity to negotiate a better deal, whether that’s on price, closing costs, or even getting a seller to buy down their mortgage rate.”

Ken Sisson, a Realtor with Coldwell Banker Realty in Los Angeles, is encouraged by these reports but is cautious about not getting too excited just yet.

“The increase in inventory is normal for this time of year, and we may be seeing a bit of home buyer fatigue that is affecting demand and contributing somewhat to the inventory increase,” notes Sisson. “The overall market may have simply normalized and balanced. But this is a very good thing.”

Are we truly in a buyer’s market?

Sellers have held the best cards for many years. But that paradigm may finally shift on a national level if numbers like these continue to emerge.

“Although there are regional variations, there is now a national trend toward a more balanced market where buyers have a little more leverage,” Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College, explains. “This change is being mainly powered by climbing housing stock and a demand slowdown – which is producing circumstances that create a lot more aggressive pricing and favorable conditions for purchasers.”

Ball doesn’t believe we are in a definitive buyer’s market, although we are moving in that direction.

“A true buyer’s market means home prices are consistently dropping, sellers are struggling to find buyers, and inventory levels far exceed demand. While there are signs of a shift in balance, we are not fully there yet. Prices are still relatively high, and demand in some areas remains strong,” he adds.

Key signs that validate a true buyer’s market include a sustained increase in inventory beyond six months of supply; significant mortgage rate declines (closer to 6% or lower); and declining home prices in more regions – not just slower price appreciation, per Lord.

Why is housing inventory increasing?

The supply of homes for sale continues to rise, thanks in part to seasonal listing patterns, more homebuilding activity, and slowing price growth. There’s also been a shift in seller sentiment, with a more tempered response from homeowners on the fence about listing and selling – who are currently testing the waters instead of holding out for higher prices.

Remember: Many sellers are still hesitant to list their homes because they don’t want to relinquish their ultra-low mortgage rates locked in from previous years.

“But at some point, life moves on and people need to relocate, downsize, or cash out. So I would expect a slow, steady increase in new listings looking ahead,” Ball says.

Indeed, many homeowners are increasingly willing to put their properties on the market, “as they realize that there is no guarantee of sustained high prices in the near future,” continues Shirshikov.

Why is homebuying demand declining?

Shoppers are simply less motivated to commit to expensive home purchases nowadays. That’s hardly a surprise to Bruce Ailion, a real estate attorney and Realtor with RE/MAX Town & Country in Atlanta.

“We are in a period where 47% of the population does not make enough money to buy the average-priced home in the country. There is a high demand to purchase but a low ability to do so,” he says. “This contributes to the increase in inventory and allows buyers to have a greater selection and a better negotiating position than when interest rates were lower and more buyers could compete to purchase.”

Demand is also on the wane due to economic uncertainty.

“Concerns about inflation, job security, and recession risks have made some buyers hesitant,” says Lord. “Also, even though mortgage rates have dipped slightly, they remain significantly higher than in previous years, making affordability a challenge. And mortgage lenders have become more cautious, limiting access to credit for some buyers.”

Will mortgage rates drop?

Although the recent dip in mortgage rates is exciting many house hunters, it remains to be seen whether this downward trend will continue or if this is a minor blip on the radar.

“I’m expecting that home loan rates will be somewhat volatile this year, as opposed to sticking to a steady downward path through 2025. Economic indicators and global financial conditions indicate we might have a seesaw scenario that includes declines followed by stabilization or modest increases in the short run,” predicts Shirshikov. “In looking back at previous market cycles, I’ve seen that kind of up-and-down action. Buyers need to be ready for a moment of due diligence coupled with flexibility.”

Ask Lord and he’ll tell you that rates are likely to stabilize throughout the year versus continuously declining. He notes that analysts anticipate marginal rate declines but not substantial drops, with rates potentially settling in the 6.5% to 7% range across the year for the benchmark 30-year fixed-rate mortgage loan.

Expected tariffs, layoffs of government employees, decreased regulation, and inflationary pressures may actually lead to higher rates than expected.

“But waiting to purchase because you are hoping for a lower interest rate this year could keep you from the home you need. Consider that a home will likely cost more year from now – regardless of the direction of interest rates,” Ailion says.

Other optimistic signs for homebuyers

Redfin’s data aren’t the only hopeful markers for buyers lately. The pros polled here point to a few other positive signs.

“We are seeing more incentives from home builders, many of whom are offering mortgage rate buydowns, closing cost assistance, and upgrades to buyers,” Lord notes.

Ailion is also encouraged that the housing supply could further increase if more Americans are incentivized to list and sell their homes – thanks to tax relief movements afoot. He cites the Trump Administration’s push for fewer limitations on the deduction for state and local taxes (SALT), a decrease in the capital gains tax exclusion for the sale of a personal residence (currently $250,000 for an individual and $500,000 for a couple), and suggested provisions that would reduce or eliminate the capital gains tax on a single-family home sold to an owner-occupant.

How buyers should proceed this year

To put yourself in a better financial position to afford a home purchase this year, and increase your purchasing power, Ball recommends:

• Boosting your credit score. “A higher credit score can lower your mortgage rate, saving you thousands,” says Ball.
• Saving for a larger down payment. “More money upfront means lower monthly payments and can eliminate private mortgage insurance if required.”
• Exploring first-time homebuyer programs. “FHA loans, VA loans, USDA loans, and down payment assistance programs can help.”
• Careful rate shopping. “Get quotes from multiple lenders, which can result in a lower interest rate and better loan terms.”

Ailion’s advice? Take your time and look carefully for many opportunities, including those outside your preferred location comfort zone.

“Homes that need updating can often be purchased at a discount and offer better opportunities to afford a property,” he adds.

Buyer candidates should also stay well-informed about local market conditions, get preapproved for home loan financing early on in the process, and partner with an experienced real estate professional who understands the nuances of this changing real estate climate.

“Buyers need to be quick to act when they see an opportunity, but also take the time to negotiate favorable terms,” Shirshikov advises. “Patience and flexibility are critical.”