Whaddya get when you “add” up record-high home prices, elevated (in the post-GFC context) mortgage rates, a decelerating labor market and widespread economic uncertainty?
A dearth of homebuyers, that’s what you get, and that’s what America has. In fact, there were fewer buyers in the market in July than during any other month going back to 2013, according to new figures from Redfin.
For reference, the site’s data scientists proxy the number of buyers using the time from first tours to close and MLS data on active listings and pending sales. The figure for July was 966,752, down nearly 50% from the peak in the summer of 2020.
There’s the chart. It’s disappointing for housing market bulls, but not nearly as disappointing as it is for millions of American homeowner hopefuls.
Indeed, implicit in a new record low for Redfin’s buyers estimate is the notion that a lot of people have given up. It’s hard to blame them. The annual income needed to afford the median-priced listing is around 25% higher than the median annual income. Colloquially: The typical family can’t comfortably afford the typical home.
A corollary says homes themselves no longer belong on a list of things the typical American can be expected to own. Housing market aficionados’ vexing penchant for denying tautologies notwithstanding, people can’t afford the unaffordable.
Meanwhile, the number of sellers is up 38% from the 2023 lows. Here’s the result:
The figure above shows the updated buyer-seller imbalance. It’s now back above 50%. July’s spread was the third-widest on record.
In the color accompanying the data, Redfin’s Dana Anderson was blunt. “This isn’t a story of surging supply so much as sluggish demand,” she wrote. “Buyers who can’t stomach today’s prices and mortgage rates are simply waiting on the sidelines.”
Right, and a lot of those people are going to stay sidelined in the absence of a meaningful and sustained drop in rates. Annual home price growth very likely undershot headline CPI and wage growth for a 12th consecutive month in July, but that process — i.e., the “organic” process by which property gets “cheaper” not necessarily because nominal prices fall, but because nominal wages grow faster — is far too glacial to make a difference in this case.
Late in 2024, I began pounding the table on the notion that everyone who could check the requisite boxes for buying in this market (i.e., everyone with 750+ credit, a solid six-figure income and a six-figure downpayment) had already bought.
If true, I warned, it’d mean the buyer pool going forward would be comprised almost entirely of people for whom the math really doesn’t work. Now here we are with the fewest buyers in at least 13 years.
Death and divorce are the only things that are gonna chip away at this. Part of the glacier.
and there’s this“ U.S. foreclosure filings rose 21 percent in the first half of 2026 compared to a year prior, reaching roughly 228,000 properties”
Looking at that second chart, that is quite a trend dating back to about November of 2021. Baby Boomers are part of the problem, but maybe not the way you think. Prices need to come down, and Boomers do own the lion’s share of existing housing, but they cannot sell if they cannot cover their existing first or second mortgages, and then find themselves somehow still able to afford to downsize in an overpriced market where there is heavy competition for smaller, more affordable homes, especially in good neighborhoods. Another problem is that someone who is older, retired, and on a fixed income, may have trouble getting a new home loan if needed — especially if they have divorced or lost their spouse — even if they are willing to downsize. It is just easier to retire in place and hope that the market improves somehow.
We need to offer incentives for builders to build — and low interest loans so buyers can buy — smaller, more affordable homes, or this logjam may continue for some time. The alternative is to wait for a “correction” in housing markets that will likely occur either much too fast, or grindingly slow. Sadly, you don’t hear anyone in Washington talking about this (only 50-year mortgages!)
I agree. Someone with a 2% mortgage isn’t going to sell, just so they can turn around and buy a smaller home, with higher mortgage rates. As you indicated, the “math” is not guaranteed to make any sense.
Especially in CA, where one’s real estate taxes will likely increase dramatically, even though they are buying a less expensive home. Prop13 keeps real estate taxes indexed to an established minimal rate increase, which- over time- can result in one neighbor paying significantly less than another neighbor, even though the two homes are equal in value. This “problem” has gotten exponentially bigger in the last 5-6 years, with the dramatic rise in property values. I have personally seen this difference be a multiple of as much as 4/5.
Maybe I am crazy, but it would drive me insane to know that just because my neighbor has lived in his home for decades, he is only paying 1/4 or 1/5 of what I was paying.
My oldest child and her spouse have told me that “boomer” parents are gifting their long term CA homes to their children because Prop 13 doesn’t require a reset of real estate taxes to market, if the home is transferred to a child.
Two of my three kids live in CA. The third will likely move there next year. I’d love to buy a little property there- but for now, when I visit, I’ll rent an Airbnb or stay in a hotel.
Probably better that way- for them and for me! 🙂
As a California homeowner, it does drive me crazy that I have neighbors paying a fraction of the property taxes I pay, especially when they claim they’ve paid their dues but I will have paid more in property taxes in 5 years than they have in 30.
Also, California now allows people 55 and older to transfer their property tax basis to a new property if they move. In addition, kids can “only” inherit up to a $1M exemption to the property tax basis IF they live in the house. The way the people on nextdoor make it sound, that’s a grave injustice for those poor souls inheriting million dollar properties. It’s apparently not enough that their parents have benefitted for years from below market property taxes and that they can inherit the house on a stepped-up basis.
I live in Cali, and I would not even suggest that we somehow rescind Prop.13, not one bit. Although it may seem unfair to some (outsiders) now, can you imagine what property taxes in this state would be for senior home owners now if Prop. 13 were not in place? Just try to imagine 3-10% property tax increases every year — year over year — on people who have owned their homes from for 30-40 years! That law was passed by an overwhelming majority of California voters over 40-years ago with good reason: property taxes in California had entered the stratosphere and were choking-out long-term property owners. I am sorry to say this, but the nation-wide shortage and prices of homes is a decidedly separate issue. Think about it: markedly higher property taxes in Cali would only serve to worsen the nation’s affordability crisis.
Edit: . . . (newcomers or outsiders).
This is the argument that always gets trotted out. Granny is going to get kicked to the curb if prop 13 isn’t preserved exactly as is. I’d have more sympathy for the plight of all these seniors who would allegedly be kicked out of their homes if they weren’t so adamantly against building more housing which conveniently increases their property values. Maybe if their property taxes weren’t capped, they might be more open to the idea of building more housing to keep property values in check?
Also, I’m not inherently against prop 13, but it needs to be reined in significantly. Why should it apply to more than someone’s principle residence? Why not increase the 2% annual limit? Why not decrease the 1%-1.25% cap on property taxes but distribute the property tax burden more equally among homeowners?
Instead we get a system where the long-term property owners that were allegedly getting choked out have now ensured that aspiring homeowners are choked out unless they either inherit a bunch of money or hit the startup lottery jackpot. Meanwhile, the long-term property owners are sitting on six or seven figure equity gains. Maybe those seniors should take out a mortgage against their equity to pay their property taxes like most aspiring homeowners have to do?
I am not sure we can connect homeowners who benefit from Prop. 13 with those who are “so adamantly against building more housing.” For example, I am 100% in favor retaining Prop. 13 as is, but my original comment here was about creating incentives to build more affordable homes. I think those are separate issues.
I never mentioned “kicking Granny to the curb”: that is a straw man argument of your own creation. Prop. 13 was an answer to a serious problem at a time when property values in this state were simply exploding. The counties and state were simply taking advantage of their ability to raise property taxes at will. It was a real win for the people of California and it should be defended. (As a matter of fact, I think other states should do the same!) There are 14 other states where the state itself does not even assess property taxes. It is simply a different system here. Believe me, California has plenty of other taxes to make up for it: the highest state-level sales tax in the country, and an absurd gasoline tax to boot.
I am not against limiting Prop. 13 to a homeowner’s primary residence, but being as Prop. 13 was a constitutional amendment, it would require a state-wide vote to change it, and all previous attempts have fallen way short. (Think about it: who is going to vote to raise their own property taxes in perpetuity?)
It’s staggering that even though millions on residential property owners had their taxes reduced masssively by Prop 13, the benefits accrued disproportionately to a relatively few number of commercial property owning individuals and entities.
For example, in 1975 commercial property taxes were 46% of the property tax base of LA County. By 2012 their share of the tax burden had been reduced to 28%.
Its a significant problem that has been growing for 30 years. The GFC gave some an opportunity to buy well; low rates allowed a few to pay a lot but have a way to increase equity due to the low rate, over time. Other than that Gen Y and Z have been left out in the cold.
the very much larger issue, has been the share of gdp that goes to labor hase been decreasing since the 60s. Wesbury at First Trust thinks ‘big govt’ over this period is the cause of high prices, no mention of low wages vs previous generations. Tax policy has made it so paying employees is a worse decision than paying execs via shares and buying shares back. Yesterday I saw something estimating if labor share was similar to the 70’s average income would be $12k higher than now. Its now part of a cultural phenom where young workers seek to make money on crypto,penny stocks, and gambling (and all want to be influencers) b/c working for wages is a no win game.
I am impressed with the article and the comments it generated. We all I think suffer from seeing the world through the lense of our own experience and these commenters brought up a few viewpoints that affect my thinking of what is causing these effects. I had thought the only factor of note was investors writing off their ordinary income with property ownership that does not cash flow the morgage payment. However now I see other rational decisions people are making which drive the economy. Overall these thoughts are driven by a change in demographics which we at one point was being solved by immigration. However now that we have chosen another path declining births comes back into focus.