Here's something you don't see often: the housing market is getting better without everything falling apart first. After years of sky-high prices and paralyzed buyers, affordability is actually improving, and it's happening through the boring route of rising incomes and stable prices rather than a dramatic crash.
The Market Is Flipping Into a New Phase
Mike Simonsen, chief economist at residential brokerage Compass, told CNBC that we're entering a new era after years of brutal affordability conditions. High prices and elevated mortgage rates kept buyers on the sidelines, while sellers couldn't get the offers they wanted and eventually just gave up.
"In the next era, that story flips," Simonsen explained. "Sales are starting to move higher, but prices are capped or maybe down. Incomes are rising faster than prices, and so affordability improves for the first time in a bunch of years."
This is the housing market equivalent of threading a needle. You want affordability to improve, but not through a crash that wipes out homeowner equity. Instead, you want incomes to catch up while prices stay flat. That's exactly what appears to be happening.
The Shadow Demand Hiding in Plain Sight
As buyers disappeared, sellers pulled their homes off the market in droves. Listing withdrawals jumped 47% in June compared to a year earlier, a clear sign of frustration on both sides.
But those withdrawn listings tell an interesting story. Simonsen calls them "shadow demand," referring to homeowners who want to move but need to sell their current home first. He estimates about 150,000 owners have delayed moves for several years and could jump back in if conditions improve.
Simonsen doesn't expect mortgage rates to plummet, and he thinks that's actually a good thing. A sharp rate decline could unleash all that pent-up demand and send prices soaring again. Instead, he expects rates to hover in the low-6% range, which should support higher sales while keeping prices manageable.
When New Homes Cost Less Than Old Ones
Last month brought a truly bizarre milestone: average prices for new single-family homes fell below existing home prices for the first time in 54 years. This is the housing equivalent of a glitch in the matrix.
New homes have historically commanded a premium because of modern features and limited supply. Three years ago, new homes were about 10% more expensive than existing ones. In 2012, the premium hit 40%. The reversal is dramatic and points to some deep structural weirdness in the market.
Meanwhile, the Trump administration has been pointing to declines in housing and food costs as evidence of progress on affordability. Agriculture Secretary Brooke Rollins highlighted that egg prices fell 86% over roughly ten months, and housing costs dropped nearly 14% since Trump took office.
But other staples like beef and bacon kept rising, keeping overall inflation at 3%, still above the Federal Reserve's 2% target. The housing shifts underscore both unusual market movements and ongoing efforts to ease financial pressure on American households.