Home sales are ticking up and price declines are leveling off as buyers ready for the spring sales season. But sellers have yet to join the fray — the number of homes for sale is the second-lowest on record — meaning stiff competition for well-priced homes, according to the latest Zillow® market report1. What mortgage rates do next will have a huge impact on the market's momentum.

"Now as a buyer, you can slow down, have your inspection and make a strong, well-informed offer," said Ryan Platzke, Realtor at Helgeson/Platzke Real Estate Group and member of Zillow's Premier Agent program in Minneapolis. "And as a seller you are still in a very good position; you won't see the 10 offers all cash, noncontingent, etc. But you will see one, maybe three offers, usually that first or second weekend, where you'll be able to select which one to go forward with and comfortably make a decision."

The typical U.S. home value was nearly flat from December to January, slipping just 0.1% and resting at $329,542, or 4.1% below the peak value set in July 2022. Despite the recent drop, it remains 6.2% higher than a year ago, and 39% higher than before the pandemic.

Buyers returning, but potential sellers opt out

The number of people buying homes has ticked up since the fall and is looking like a normal, pre-pandemic January. At a low point in November, newly pending listings were down 38% compared to one year earlier. In January, they were only down 20% from the previous year and were right in line with 2020.

Previously priced-out buyers were likely encouraged by mortgage rates that fell from a peak of 7.08% in November to 6.09% by Feb. 22 before ticking back up. This dramatically improved shoppers' ability to buy. A new mortgage for a typical home using a 5% down payment cost $2,310 in October; that fell to $2,100 by the end of January. But conditions are still far more challenging than they were before the pandemic — in January 2020, a monthly payment was $1,127.

But while buyers are returning to the market, homeowners are opting not to list their homes. The 230,000 new listings in January were by far the lowest total in Zillow records that begin in 2018; 17% fewer than the then-record low of January 2022 and 30% lower than the 2018–2021 average of about 330,000.

The 825,000 homes on the market in January was the second-lowest total in several years, and about 450,000 fewer than were ever on the market in January 2020.

This means competition for well-priced houses is stronger than before the pandemic, but don't expect the widespread bidding wars of 2021 and early 2022.

It took a median of 31 days for a home to sell in January, indicating that buyer competition for attractive listings is livelier than pre-pandemic norms (more than 40 days to pending), but not as furious as in 2022 (nine days to pending) or 2021 (17 days to pending).

Will sellers return? If they do, what mortgage rates will buyers be facing?

In the first two weeks of February, mortgage rates shot up by as much as 0.75 of a percentage point, proving that no one can count on a consistent downward trajectory for rates this year. Continued rate hikes would stunt supply as well as demand. Homeowners with very low mortgage rates will be reluctant to sell and have to buy another home with a much higher rate. Meanwhile, buyers are already straining their budgets to get into a mortgage. Sellers waiting for peak demand to try to get the best price for their listing may find few buyers able to afford it.

"The risk for sellers waiting till April or May to list is that no one knows what mortgage rates will do in the meantime," said Zillow senior economist Jeff Tucker. "Buyers may return to hibernation if last month's mortgage-rate thaw turned out to be a false spring."

This is the first monthly market report that refers to the newly launched version of the Zillow Home Value Index (ZHVI), now based on the neural network-driven Zestimates formula that Zillow produces for nearly every home in the United States. The new ZHVI, like the neural Zestimate, now better reflects seasonal changes; prices tend to trend up in the spring and down in the fall and winter.