There is a notable shift in the housing market, which has favored sellers for years. Buyers are gaining the advantage in some parts of the U.S. By Shaina Mishkin

The number of homes listed for sale this spring has jumped, but as costs remain prohibitive, buyers aren't returning with the same enthusiasm. A recession could change that by pushing prices lower in some parts of the U.S.

The disconnect can be seen to differing degrees across the U.S. In Dallas, where inventory is "starting to pile up," more buyers are calling off their searches and choosing to wait, says Texas Re/Max agent Todd Luong. In New Jersey, one of the most competitive states for residential real estate, homes remain in high demand -- but sellers aren't seeing the frenzy they're used to, says Michael Read, a Morristown-based mortgage lender and real estate agent. "Buyers aren't as excited as they might have been in the past," he says.

Nationally, existing-home sales are down 2.4% through April despite a 5.1% gain in the number of properties for sale, says National Association of Realtors senior economist Nadia Evangelou. Costs are an issue: "The market is seeing a recovery in listings, but demand remains soft due to affordability constraints," she says.

Home prices rose roughly 40% in the first 2 1/2 years of the pandemic -- and a relatively short supply boosted them further even as mortgage rates raced to their highest levels in decades. Mortgage rates' volatile moves since then -- like the sharp swing toward 7% after Moody's downgraded its rating on U.S. sovereign debt -- haven't helped.

The housing market is already shifting out of sellers' favor, but buyers aren't quite in the driver's seat, either. Sellers expect the sky-high prices of 2021, while buyers want the burst-housing-bubble deals of 2011, says Leo Pareja, the CEO of eXp Realty. Neither expectation is a sure thing. Nationally, sellers cut prices on nearly one in five listings last month, a larger share than any April since at least 2017, according to Realtor.com. ( News Corp, which owns Barron's, also owns Realtor.com operator Move.)

That imbalance is working its way into the market through price cuts -- a notable shift in a housing market that has broadly favored sellers for the past several years. "It's going to become a buyer's market," says Ivy Zelman, executive vice president and co-founder of housing analytics firm Zelman & Associates.

A recession could change the equation more quickly. Recession odds have fallen precipitously in the wake of the China-U.S. trade agreement, with J.P. Morgan revising its call on the likelihood of a recession to less than 50% from 60%. The agreement has put a pause on the harshest possible outcomes -- but the effects of the new levies have yet to fully play out in the economy.

Policy changes could also ding consumer confidence. Just look at this spring's home buying season: Many opted to "hang tight and hold out" through market and mortgage rate fluctuations, says Rick Palacios Jr., director of research at John Burns Research & Consulting.

Forecasts for home prices nationally are already flirting with declines. Zillow expects home values to drop 1.4% this year as more sellers entered the market than buyers. Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School, expects that nominal home prices could range from flat to up 2% this year -- and that is without a recession.

The math changes if a recession hits and triggers job losses. For roughly every one percentage point increase in unemployment, home prices slow or decline by the same magnitude, says Wachter. If that happens, mortgage rates could fall from the above-6% levels they have been stuck at -- but fewer would-be buyers could be in a position to take advantage of them.

In a recession, some areas of the U.S. housing market could see prices fall as much as 10%, says Zelman. What such a pullback looks like depends on local housing dynamics. "There is going to be a big divergence between the markets with inventory pressure versus those that don't have it," she says.

The parts of the housing market that have already seen listings rise significantly and prices slow or drop -- such as Fort Myers, Fla., and Austin, Texas -- would see the largest declines, Zelman adds. Prices in places where economic growth remains strong and supply increases are relatively weak -- like in the Midwest -- would hold up best.

A recession could bring the opportunity buyers are waiting for. Homes nationally are overvalued by 11%, according to Fitch Ratings. Price declines would remove some of the hot air introduced during the pandemic home-price explosion.

In Dallas, where prices have risen more than 50% since late 2019, buyers aren't pulling the trigger "because prices haven't really crashed yet," says Re/Max's Luong. "They are going to need to see some sort of a drop that is very evident compared to what prices were a few years ago." Though price cuts have picked up, the magnitude of the drops -- $10,000 here, $15,000 there -- isn't enough to get buyers back in the game, he adds.

A decline in mortgage rates would further improve the math. Mortgage rates have been stuck above 6% since September 2022 -- and forecasters largely expect them to stay there in the coming years. But economic weakening could drive more investors into Treasuries, sending the 10-year Treasury yield lower and bringing mortgage rates down. Mortgage rates ended recessions lower than they began them in six of the past seven recessions, according to Dow Jones Market Data.

The timing could be particularly advantageous for buyers hunting for a second or vacation home. Second-home owners sitting on significant piles of home equity may be more likely to sell in such a scenario. Just look at Florida: While sales prices in March were down about 2% from a year earlier, they remained 57% higher than the same month in 2020, according to property analytics company Attom.

That doesn't mean it would be easy, particularly for buyers seeking an entry-level home, for which competition remains relatively high and supply low. "Even with these additional homes for sale, there is still a substantial mismatch between what's available and what buyers can afford, " says the Realtor association's Evangelou.

A buyer wading into the market will want to feel secure in their job and have the cash for a down payment. For a buyer who can commit to a home for five or more years in a place where listings are rising, "it might be the right time to buy," says Kory Leadon, a senior lead advisor at Brighton Jones.

For these buyers, it might be a good idea to keep down-payment funds in a high-yield savings account or similar vehicle. Leadon suggests Treasury-backed money-market funds with a major custodian like Fidelity or Charles Schwab -- and keep an eye out for rising listings.

"If you're noticing that inventories are going up [where] you're looking to buy in, that is a pretty good indicator that the shift is occurring into a buyer's market," he says. "That will just present more and more opportunities to negotiate better pricing."

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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May 23, 2025 21:30 ET (01:30 GMT)

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