January Housing Market Update: Higher Inventory and Price Cuts Define the Market

The U.S. housing market started the new year with a rise in inventory and an increase in price reductions, signaling a shift in market dynamics.

According to Realtor.com, the number of homes actively for sale grew 24.6% year-over-year, marking the 15th consecutive month of inventory growth. More homes on the market mean buyers have greater negotiating power, especially as mortgage rates remain elevated. Meanwhile, Zillow reports that nearly 23% of listings received a price cut in January, the highest rate for this time of year since it began tracking the metric in 2018.

For sellers, this means adjusting expectations as price growth slows, while buyers may find more room to negotiate. However, even as inventory rises, affordability remains a challenge due to persistently high mortgage rates, impacting both home sales and new construction.

More Homes on the Market, but Still Below Pre-Pandemic Levels

The increase in housing inventory is one of the most significant shifts in today’s market. Realtor.com noted that the total number of homes for sale, including those under contract, increased by 17.1% year-over-year. However, housing supply is still 24.8% below typical 2017-2019 levels, meaning there is still some way to go before reaching pre-pandemic norms.

Regionally, inventory is increasing fastest in the West (31.0% growth), followed by the South (27.2%), the Midwest (16.8%), and the Northeast (7.8%). Among the largest metro areas, Denver (+54.8%), Las Vegas (+49.4%), and Tucson (+45.0%) saw the greatest jumps in available homes.

While more homes on the market give buyers additional choices, demand is still constrained by high mortgage rates. Zillow reports that the typical monthly mortgage payment is up 6% from last year and has risen 115.4% since before the pandemic, putting homeownership out of reach for many first-time buyers.

Price Cuts Are Becoming More Common

As inventory rises and buyers face affordability pressures, more sellers are reducing their asking prices. Zillow found that 22% of listings had a price cut in January, up from 20% a year earlier. This is the highest percentage of January price cuts since 2018.

Price reductions are most common in Phoenix (33% of listings), Tampa (32%), Jacksonville (30%), Orlando (29%), and Dallas (28%). The trend suggests that many sellers who initially priced their homes too aggressively are adjusting to meet buyer demand.

However, not all sellers are struggling. Redfin reports that nearly 25% of homes sold in January closed above asking price, a sign that competition remains strong in certain markets. The most competitive metros include Rochester, NY (66% of homes sold above list price), Newark, NJ (59%), and Buffalo, NY (58%).

New Construction Faces Headwinds

Despite the rise in resale inventory, new home construction is slowing down. The National Association of Home Builders (NAHB) reported that overall housing starts fell 9.8% in January, with single-family home starts declining 8.4% compared to the previous month.

NAHB Chief Economist Robert Dietz cited “persistent affordability concerns” as a major reason for the slowdown, adding that reducing regulatory costs could improve supply. The number of single-family homes under construction fell 6.3% year-over-year, while multifamily construction dropped 22.1%.

Regionally, the biggest drop in housing starts was seen in the South (down 23% from December), while the West saw an unexpected increase of 42%. With rising material costs and high mortgage rates discouraging demand, many builders are holding off on new projects until market conditions improve.

Homes Are Taking Longer to Sell

Another sign of a cooling market is the increase in days on market. Realtor.com reported that the typical home in January sat for 73 days before selling, up five days from last year and the slowest January since 2020.

The slowdown is most pronounced in cities like Nashville (+19 days longer on market), Orlando (+15 days), Miami (+11 days), and Portland (+11 days). In contrast, homes in high-demand areas like Seattle, San Jose, and Boston are selling in two weeks or less, indicating that competition remains fierce in select markets.

While homes are taking longer to sell compared to last year, they are still moving 11 fewer days on the market compared to 2017-2019 averages, reflecting the ongoing supply shortage.

A Market in Transition

The housing market in January reflects a balancing act between supply and demand. More inventory and price reductions are creating opportunities for buyers, but affordability remains a significant hurdle due to high mortgage rates. Sellers are adjusting to the reality of a cooling market, with longer selling times and price cuts becoming more common.

Meanwhile, new construction faces headwinds, as homebuilders remain cautious about launching new projects amid affordability concerns.

Looking ahead, housing experts anticipate modest sales growth in 2025, especially if mortgage rates ease. But for now, buyers and sellers alike must navigate a market that is neither fully in favor of sellers nor a complete buyer’s market—a true reflection of a transitioning real estate landscape.