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Homebuyer demand fell for the fifth month in a row in June, dropping 17 percent year-over-year, as a severe shortage of homes for sale limited buyer activity. The Redfin Housing Demand Index, a forward-looking metric, fell to a seasonally adjusted level of 88, signaling weaker-than-expected market conditions. This decline suggests a slowdown in existing-home sales for August. The core issue is a simple equation: there were more buyers than available homes, leading to quick sales often above asking price, but the overall pool of active buyers shrank due to constrained inventory.
What is the Redfin Housing Demand Index?
The Redfin Housing Demand Index is a specialized metric that tracks early-stage homebuyer activity, such as requests for home tours and written purchase offers. It is considered a forward-looking metric, meaning it is highly correlated with existing-home sales figures reported by the National Association of Realtors about two months later. The index uses a seasonally adjusted value—a statistical method that removes predictable seasonal patterns—to allow for accurate month-to-month comparisons. A benchmark of 100 represents the historical average demand between 2013 and 2015. A reading above 100 indicates stronger-than-expected demand, while a reading below 100, like June's 88, points to relatively weak activity.
Why Did Homebuyer Demand Fall in June?
The decline is directly attributed to a sharp drop in housing inventory. Across the 15 major metro areas tracked by the index, there were 7.6% fewer homes for sale compared to a year ago. This created a market environment where, despite strong buyer interest, there were simply not enough new listings to sustain demand levels. The number of customers requesting home tours saw its smallest annual increase since 2014, and fewer people wrote purchase offers compared to both May and June of the previous year. Based on our experience assessment, even strong buyer interest cannot compensate for a fundamental lack of supply.
How Did Demand Vary by Metro Area?
Demand trends were not uniform across the country. The most significant year-over-year decrease occurred in Denver, where demand fell by 54.7%. In contrast, Baltimore saw demand increase by 20.7% annually. On a month-to-month basis, Atlanta experienced the largest decline (-47.1%), while San Francisco posted a substantial gain (+45%). This rebound in the Bay Area is attributed to an increase in homes for sale and slowing price growth, which has drawn buyers back into the market.
What Does This Mean for the Real Estate Market?
The consistent decline in the Demand Index points to an overall cooling of buyer activity, primarily driven by inventory constraints rather than a lack of interest. Homes that are listed continue to sell quickly, often in competitive bidding situations, but the total volume of transactions is pressured. For buyers, this means the market remains competitive for the available properties. For sellers, it indicates that well-priced homes in desirable areas will still attract attention, but the pool of potential buyers may be smaller than during peak demand periods.
The key takeaway is that the U.S. housing market is defined by a significant inventory shortage. While low supply continues to create competitive conditions for individual listings, the overall ability of buyers to engage in the market is diminishing because there are fewer properties to act upon. This trend is expected to result in slower sales pace in the coming months.
