U.S. Housing Demand Moderates in July 2023 as Inventory Constraints Persist

The U.S. housing market showed signs of moderation in July 2023, as the Redfin Housing Demand Index—a key measure of homebuyer activity—declined 5.0% from its record high in June. Despite this monthly dip, buyer demand remained significantly stronger than the previous year, with the index up 29.7% year-over-year, highlighting a market caught between persistent buyer interest and a severe shortage of homes for sale.

This analysis is based on thousands of Redfin customers requesting home tours and writing offers. A level of 100 represents the historical average for the three-year period from January 2013 to December 2015. The underlying methodology was revised in August 2017 to improve the way it accounts for the company’s market share growth.

What Does the Drop in the Housing Demand Index Mean for Buyers and Sellers?

The dip suggests that while the desire to purchase a home is still strong, buyers are becoming more cautious. The seasonally adjusted data shows a 3.3% decrease in buyers requesting home tours and an 11.0% drop in those writing offers from June to July. This indicates that rising home prices and limited choices are starting to temper buyer enthusiasm. For sellers, this means the extreme seller's market advantage is narrowing. As Redfin chief economist Nela Richardson noted, "Sellers are still in control of the market, but their advantage is narrowing as buyers are becoming less willing or able to chase escalating prices."

How Does Current Housing Inventory Affect the Market?

The core issue remains a critical lack of supply. Across the 15 major metropolitan areas covered by the index, data shows a 13.9% year-over-year decrease in the number of homes for sale in July. Furthermore, there was a 5.9% decline in new listings. July 2023 marked the 26th consecutive month of annual inventory declines, creating a sustained environment of competitive bidding and upward pressure on prices.

What is the Outlook for the Rest of 2023?

Based on our experience assessment, the market is entering a transitional phase. The high year-over-year demand figures (35.3% more tour requests and 21.0% more offers written compared to July 2022) confirm a robust underlying interest in homeownership. However, the recent monthly cooling trend is a predictable response to affordability challenges. The market's trajectory will heavily depend on whether more homeowners decide to list their properties.

Conclusion: Key Takeaways for Navigating the Current Market

• For Buyers: The modest cooling in demand may present a slight reduction in competition, but be prepared for a market with significantly fewer options than in previous years. Securing mortgage pre-approval is essential.
• For Sellers: Your home is still likely to attract interest, but pricing your property competitively from the start is more critical than ever to appeal to value-conscious buyers.
• Core Challenge: The fundamental imbalance between supply and demand continues to be the dominant force shaping the U.S. real estate landscape.