Competition in the housing market is expected to reignite as falling mortgage rates breathe new life into buyers, according to Zillow’s latest report. 

Zillow’s July Housing Market Report revealed a continued softening of the national market, with sellers reducing prices, inventory on the rise and price growth slowing. Despite a cooling in buyer competition last month due to high housing costs, the recent dip in mortgage rates could spur renewed interest as we move into the fall.

And while homebuyer competition and price appreciation tapered off faster than normal last month, due to high housing costs, the report found recent drops in mortgage rates should spur more competition as we enter the fall.  

Zillow Chief Economist Skylar Olsen said if the relief from mortgage rates continues, we should see more buyers restarting their hunt for a home. 

“Although rate lock among homeowners is easing, they probably won’t be as motivated to jump back into the market and sell,” Olsen said. “With housing inventory still scarce, this improved affordability picture could reignite competition and sales as we head into the fall, or at least delay the usual post-summer cooldown.” 

Nationally, the report found sellers have lost the upper hand as the market shifted into a more neutral, balanced territory in July — marking the first time this year it’s been something other than a seller’s market.

But that’s not the case in Chicago where the market still favors sellers, bucking the national trend.

Last month also marked the first time the national market has been neutral in July since 2019. In the past two years, the market transitioned to neutral ground in October. 

Homes are taking longer to sell

In July, listings took almost a week longer to sell than they did last year. Zillow noted that while that’s still five days faster than the average sales pace in the years before the pandemic, it’s still a sign that buyers were much less eager to commit. 

Inventory is growing

Nationally, inventory is increasing, now nearly 25% higher than last year’s levels, according to the report. This marks the eighth consecutive month that the year-over-year inventory gap has widened. Despite the growth, inventory remains 31.5% below pre-pandemic levels. However, this is the smallest deficit observed since October 2020.

Sellers are cutting prices

Last month, sellers slashed prices at record levels to attract cash-strapped buyers. Over 26% of homes listed on Zillow had a price reduction, the highest percentage for any July since at least 2018, when the dataset began, the report found.

In Chicago, 25.4% of listings saw a price reduction in July.

Zillow said if mortgage rates continue to bring relief, expect to see more buyers restarting their home search. Lower August rates are already making homebuying look even more appealing.