Something is off in the U.S. housing market, and now its CEO is sounding the alarm. While rising interest rates, limited supply, and affordability issues dominate the news, there could be deeper issues developing beneath the surface.
Is this just another typical market cycle, or are we entering unfamiliar territory? As mortgage rates remain high and buyer habits shift in unpredictable directions, traditional strategies are becoming outdated. For millions of Americans, the dream of owning a home is moving further out of reach, and now, industry leaders are sounding the alarms. But what does this mean for the rest of us?
The Market Is Not Crashing
For the last two years, America’s housing market has been in a weird place. Homeowners are reluctant to sell their properties because they are holding onto low interest rates, while buyers are backing off due to inflated prices. Real estate agents are caught in the middle.
This doesn’t mean that the market is crashing, but the excitement has faded. Something strange is happening, and itâs more than just the typical seasonal dip.
More Available Homes
Seasonal slowdowns are nothing new, but this one stands out. Despite headlines pointing to inventory increases and price discounts, home sales remain slow. In the past, more available homes usually meant more buyer activity. But now? They’re staying out of it.
Even traditional levers, like interest rate drops or government perks, aren’t shaking the market out of its slump. Thatâs what has experts, and now Zillowâs high command, sounding the alarm.
Real Challenges
During Zillowâs Q1 2025 earnings call, the CEO, Jeremy Wacksman, was blunt. âWeâre seeing real challenges in transaction volume,â he revealed.
The Zillow platform still sees a lot of user activity on a daily basis, but the actual number of people buying or selling homes has remained frustratingly low. This means that people are curious, but they are not willing to take action. This greatly concerns Zillow.
The Problem
Wacksman clarified that the problem isnât a lack of traditional demand. “People still want to move,” he said. Based on the site’s activity, it’s clear that people are still interested.
However, the economic environment is making it hard for them to move forward. “It’s not that Americans don’t want homes,” he explained. “It’s that they can’t afford them now.” Demand hasnât disappeared; itâs simply frozen in place, waiting for conditions to improve.
Extra Expenses
Mortgage interest rates, which previously sat at 3%, are high currently, sitting between 6.5% and 7%. This means that hundreds, if not thousands, are added to monthly payments.
First-time buyers and those wanting to upgrade are now choosing to cut their losses. Most people would rather remain where they are than take on the extra expenses. Even when home prices ease slightly, affordability remains the biggest barrier.
Staying Put
Itâs not just buyers who are hesitant. Sellers are staying put, too, not wanting to give up their ultra-low mortgage rates either. After all, a homeowner with a 3% rate on a $400,000 mortgage isnât likely to trade that for a 7% rate on a similarly priced home anytime soon.
This has created what economists refer to as the âlocked-in effect,â where homeowners feel stuck in their current mortgages. As a result, inventory has stagnated, and new listings have declined, which is another key factor that Zillow is closely monitoring.
Existing Listings
You may have heard that housing inventory is on the rise, and thatâs technically true, but not like it used to be. Most of this growth is because existing listings are up for longer instead of new houses coming onto the market.
According to Zillow’s statistics, listings are increasing, but buyer activity is not. Houses are staying on the market for extended periods of time, giving the illusion of more new homes being out there when the market is actually still limited in quantity and affordability.
Over 30%
One in four Americans are now spending over 30% of their income on housing, which is widely considered a financial breaking point. If you add inflation, stagnant paychecks, and exorbitant insurance rates, you’ve got a formula for paralysis.
Wacksman stated that this pattern is one of the main reasons people look for homes online and dream about relocating but remain where they are. It’s not because they aren’t interested; it’s simple economics.
A Psychological Factor
Beyond the hard numbers, thereâs also a psychological factor. Buyers are worried about overpaying, while sellers are scared of letting their homes go for too little. The result? No one wants to make the first move.
This issue has created what Zillow executives refer to as “transaction gridlock,” which is a state where both sides are ready to make a move, but no one wants to take the plunge. Even in markets that are usually red-hot, activity has cooled.
A Rebound
Earlier this year, there was hope that 2025 would see a rebound. With inflation easing, potential Fed rate cuts, and the momentum of a presidential election year, many expected the market to regain some momentum.
However, that was not the case. Zillow CFO Jeremy Hoffman revealed that they’re hoping for housing to “bounce along the bottom” through to the end of the year. This would lead to a slow, gradual recovery with no quick fixes on the horizon.
Keep A Close Eye
If you’re a buyer, you might be wondering if you should move or wait. Zillowâs advice? Donât count on a dramatic drop in home prices. Instead, the smarter move is to keep a close eye on interest rates and your neighborhood markets.
While the national market may be slowing, local conditions are quite volatile. If you’re financially stable, patient, and know how to spot a good deal, this can still be your moment.
The Reality
Zillow’s warning isnât driven by fear; it’s the reality. It rises and falls with real estate activity and has every reason to forecast a rosy outlook.
But the truth is, the market isnât crashing; itâs just not recovering. Wackman says there is demand but very few buyers at the moment. This imbalance can carry well into next year.
A Deeper Issue
As a buyer, seller, investor, or renter, Zillow’s warning underlines a deeper issue: right now, the housing market in America is in a holding pattern. Without significant changes in the economy, the freeze will likely continue.
For now, you shouldn’t expect a huge decline, nor should you expect upward movement. In a market ruled by hesitation, your best option is to be patient and keep an eye on your local listings.
Another Blow
The recent downgrade of U.S. sovereign debt by Moodyâs has pushed 30-year mortgage rates back above 7%, dealing another blow to housing affordability and putting even more pressure on an already strained market.
This move made financing for homes even less affordable, particularly during the peak housing season. The downgrade reflects concerns about the U.S.’s fiscal prudence and federal debt.
Significant Challenges
At the moment, first-time homebuyers are facing significant challenges due to consistently high mortgage rates of 7%, which is also putting downward pressure on homebuilders.
Despite government-sponsored mortgage rates of nearly 5% by mega builders, new orders and sales remain slow. Earlier this year, builders like PulteGroup reported an 11% drop in new orders from first-time buyers.
Optimism Crumpled
In May 2025, U.S. consumer optimism crumpled as inflation expectations reached their highest point since 1981. The University of Michigan Consumer Sentiment Index dropped to 50.8 as the public grew more concerned about the economic effects of trade policy and tariffs.
These trends present challenges for the Federal Reserve, which controls interest rates to manage inflation and economic growth. The negative trends could lead to delays in further interest rate hikes.
Regional Disparities
As of 2025, the U.S. single-family home market remains deeply fragmented, with home prices dropping rapidly in some counties.
Zillowâs updated Home Value Index shows significant regional price disparity up to and including April 2025. This uneven terrain makes it clear that buyers and sellers should focus more on local market conditions.
Less Affordable
As owning a house becomes less affordable, more people are turning to rentals, driving up demand in the rental market. Zillowâs rentals segment saw a 33% year-over-year increase on the basis of deals with Realtor.com and Redfin.
This trend shows a growing shift toward renting in light of high home prices and mortgage rates.
A Massive Obstacle
Affordability remains a massive obstacle in the U.S. housing market. According to the National Association of Realtors, the existing home median sales price still goes up, pushing many middle-income buyers out of the market.
Even though the inventory is growing, benefits are not reaching all income levels.
Remaining Steady
Despite a turbulent period of policy releases and adjustments, mortgage rates have remained surprisingly steady.
At the start of the year, rates rose to a high of 7.04%, then declined to about 6.6%. They fluctuated around 6.6% during March and April. Volatility remains a big consideration in buyer decisions.
A Strong Start
Despite challenges in the market, Zillow still saw a strong start to 2025, managing to surpass its first-quarter expectations with $598 million in revenue. This is a 13% improvement year-over-year.
This is partly due to growth in the company’s products and tools, including its “housing super app.”
What Zillow Expects
Zillow expects the housing market to pick up in 2025, predicting a 2.6% rise in home prices and around 4.3 million existing homes sold.
While mortgage rates will likely stay unpredictable, this volatility will continue to influence buyer behavior. Overall, the market is set to become more favorable for buyers, particularly in the Southwest region.
Modest Pace
The American housing market will most likely stay mostly stagnant for now. Growth is expected but at a very modest pace of 3% or less.
This forecast suggests that a significant change in economic conditions would be necessary to boost the housing market more substantially.