Unaffordability woes that have driven a freeze in the housing market might be showing some signs of improvement as houses start to pile up on the market. Fewer buyers have been looking to jump into homeownership amid economic uncertainty and high interest rates.

Redfin said in a report released last week that housing prices could fall 1% on a national average by the end of the year if the current trend continues. A combination of reduced demand from buyers being held down by higher mortgage rates, economic uncertainty and unaffordability with increasing inventory will lead to reduced prices, Redfin predicted.

While it is only a modest decline, it would be a significant change for a market that has become the most unaffordable in American history as average prices have skyrocketed to more than $400,000 pushing many out of homeownership.

The market is shifting toward favoring buyers after years of being a seller’s market with rampant competition for limited listings driving up value and allowing current homeowners to cash in on equity. The prolonged slump in the existing home market is starting to produce a bigger supply pool, easing one of the main price pressures.

Total housing inventory at the end of April was up 9% from March and nearly 21% from a year ago at 1.45 million units, according to the National Association of Realtors’ existing home sales report. Unsold inventory was at a 4.4-month supply, an increase from a 4-month supply in March and 3.5 months at the same time last year.

Inventory is at the highest level in five years on a national level, giving buyers more room to secure concessions or cost reductions from owners who have been in the drivers’ seat for years.

“We know there’s room to negotiate right now, so that’s the best way to take advantage of the changing market,” said Chen Zhao, Redfin’s head of economics research.

Outside of a blip in 2023, home prices have increased on an annual basis since 2012 because of longstanding issues with a shortage of housing supply and limited progress in building to make up for it. The median sales price on existing homes has increased for 22 consecutive months but the rate at which they have grown has slowed in 2025.

Prices are likely to continue to rise in some parts of the country, particularly in large metro areas and regions where demand has remained steady but still provides some good news on the affordability front for buyers.

Buyers are still running into another affordability hurdle in mortgage rates, which climbed in 2022 and have been hovering around 7% for much of the last two years. The average rate on a 30-year, fixed-rate loan was 6.86% for the week ending May 22, still well above the pandemic-era lows of 3% or less many homeowners were able to lock into.

Buyers have adjusted to higher rates and have jumped into the market when they have dipped but are still facing higher costs to buy a home. The difference between 3% and 6% loans is worth hundreds of dollars on a monthly mortgage payment, shrinking budgets and pushing some out of the market.

Economists and industry analysts are not expecting mortgage rates to budge much the rest of the year. Economic uncertainty from tariffs and lingering inflation has pushed the Federal Reserve to hold its interest rates steady and concerns about the rising federal deficit that led to a downgrade of the U.S.’ credit rating are keeping mortgage rates higher.

“I don’t see interest rates coming down, and I don’t see interest rates coming down anytime soon. If they do come down, we’re probably looking at the mid-5s, I think you’re never going to see 3% again,” said Keith Munsell, head of the real estate concentration at Boston University’s Questrom School of Business. “High interest rates, lack of production, lack of inventory and demand. It’s all kind of the perfect storm.”

Rates could fall if the Trump administration makes an unexpected U-turn on its expansive reshaping of trade policy and tariffs, though administration officials have suggested a baseline rate of 10% will be in effect regardless of trade deals that get negotiated.

They could also take a dip if the economy tumbles, which is of high concern to economists with uncertainty over tariffs and fears of trade wars.

“If we have some recession and if the tariffs really put the kibosh on the economy, as a number of economists are predicting, all bets are off,” Munsell said.

But a recession-induced reduction of interest rates won’t help a struggling housing market. It likely would mean more Americans are out of jobs or in fear of losing one, leaving them less money to buy a home and more unwilling to take on the major expense like a mortgage. Concerns about the future of the economy are already playing out in the housing market in the reduced activity and an uptick in cancellations of housing contracts, another indicator of a struggling market.

Have a news tip? Contact Austin Denean at atdenean@sbgtv.com or at x.com/austindenean.