SEATTLE, WA — Persistently high mortgage rates are reshaping the U.S. housing market, creating opportunities for buyers as sellers adapt to a slower-paced market, according to Zillow’s recent analysis. With mortgage rates exceeding 7%, affordability challenges loom large, but conditions such as increased price cuts and reduced competition have handed buyers more negotiating power than they’ve had in years.
Key Trends in the Housing Market
Zillow’s data shows nearly 23% of home listings saw price cuts in January, the highest percentage recorded for the month since the company began tracking the metric in 2018. Meanwhile, newly pending home sales dropped 3.6% year over year, a result of stretched buyer budgets as mortgage rates climbed to 7.04%, the highest level since May.
“Homeowners are finally coming back to the market as the effects of rate lock ease over time, but buyers are still struggling with high monthly costs,” said Skylar Olsen, Zillow’s chief economist. “Sellers are in a good position, and are willing to make price cuts to close a deal. Home equity is near record highs, and the general economy and financial markets are surprisingly strong. Homes are selling faster than they did before the pandemic.”
Nationally, home values have risen by 44% since the pandemic began and are up 2.6% year over year. Regional trends vary widely, with San Jose experiencing an 8.1% annual increase in home values, while Austin saw a 3.4% decline. For buyers, affordability remains a challenge, but for those paying close attention to their local markets, the opportunity to negotiate lower prices is growing.
Sellers Are Slowly Returning
Sellers are showing renewed willingness to enter the market, with new listings from existing homeowners climbing nearly 12% year over year in January. This trend highlights the slow weakening of the “rate lock” effect, where homeowners have previously hesitated to sell to avoid losing their historically low mortgage rates. A Zillow survey found that 78% of recent sellers were motivated by life changes such as a new job or family growth, rather than market conditions.
Western U.S. markets are leading the rise in new listings, with Portland (up 48%), Seattle (40%), Denver (34%), and San Francisco (32%) seeing significant year-over-year growth in inventory. Still, there is a notable shift in seller behavior; just 54% of sellers purchased a new home following their sale, down from 70% in 2024 and the lowest share since 2018.
Homes that do sell are often moving quickly, with nearly one in four December transactions closing above the original asking price. This is up from pre-pandemic norms of 19%, but still lags behind the peak of bidding-war activity experienced in recent years.
Buyers Gain Negotiating Power
For buyers, the landscape is becoming more favorable. Zillow’s market heat index shows buyers now hold the most leverage in negotiations seen in any January over the past five years. Price reductions are particularly prevalent in Phoenix, Tampa, Jacksonville, Orlando, and Dallas, where upwards of 29% of listings are being discounted.
At the same time, homes that sell are spending more time on the market than in early 2024. The median time to sell now stands at 38 days—nine days slower than last year but still 10 days faster than pre-pandemic levels.
However, competition remains highly localized. Homes are flying off the market in under two weeks in high-demand coastal metros, including San Jose, Boston, Seattle, and Washington, D.C., while Southern cities like Atlanta, New Orleans, and several Texas and Florida metros are witnessing a far more relaxed pace of sales.
Looking Ahead
Zillow’s findings illustrate a steadily shifting housing market, with buyers gaining greater bargaining power while sellers adapt to changing conditions. Though challenges persist—especially for buyers navigating affordability issues—the market’s cooling pace may provide relief for those previously priced out or unable to compete during bidding wars.
The coming months may reveal more insights into how closely linked mortgage rates, economic conditions, and inventory levels will shape the housing landscape. However, for now, buyers and sellers alike are finding themselves on more equal footing, paving the way for a more balanced market in 2025.
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