Zillow Group Warns Of Faster Expansion Than Market Average
Despite a partial rebound in the stock market, the real estate sector remains sluggish in its recovery. Sustained high-interest rates have kept mortgage rates elevated, eroding buyer affordability and hindering seller motivation to switch homes.
A complex interplay of economic, supply-side, and demand-side factors is contributing to the sluggish recovery. High mortgage rates have increased borrowing costs substantially, curbing homebuyers' purchasing power and making mortgages less affordable. For instance, average 30-year mortgage rates hovered around 6.7% in April 2025, resulting in many potential buyers holding back, particularly first-time homebuyers. Although home prices have continued to rise, with median existing home prices up 2.7% year over year in the U.S., moderating price growth has only marginally alleviated affordability concerns.
High mortgage rates have also encouraged many existing homeowners to stay put, as they are unwilling to relinquish their lower-rate mortgages. This "lock-in effect" has exacerbated supply constraints by reducing the homes available for sale and limiting options for buyers, making the market even tighter. Furthermore, ongoing supply chain issues, labor shortages, and policy and economic uncertainties have slowed the pace of new home construction, further constricting supply.
Geopolitical and trade policy shifts have also injected fresh uncertainty into the real estate market, affecting business confidence and investment strategies. While markets remain resilient, this unpredictability acts as a drag on both consumer and investor sentiment. Moreover, these uncertainties have prompted market participants to adopt a short-term focus, instead of considering long-term investments, contributing to a delay in recovery.
In the commercial sector, debt and credit levels are relatively healthy, with asset value resets over the past two years reducing risk. Nonetheless, high interest rates still pose challenges for affordability and investment decisions. The market is currently adjusting to this new environment.
Although new supply pipelines in mature markets are dwindling, supporting existing asset values, this does not equate to a widespread revival across all sectors and regions. In sum, the real estate market's recovery is hindered by high mortgage rates that undermine affordability, limited supply due to seller reluctance, and wider economic uncertainty that suppresses consumer and investor activity. A strong recovery depends on a combination of lower rates, increased inventory, and a reduction in economic and policy uncertainty.
[1] Source[2] Source[3] Source[4] Source[5] Source
(To provide context, the cited sources draw on experts' opinions, research, and data from reputable organizations like the Mortgage Bankers Association, National Association of Realtors, and Freddie Mac)
- The high mortgage rates, resulting from sustained high-interest rates, are making real-estate investments less financially attractive due to increased borrowing costs, eroding buyer affordability, and hindering seller motivation, as evident in the ongoing sluggish recovery in the real estate sector.
- The ongoing interplay of economic, supply-side, and demand-side factors, such as high mortgage rates and limited supply of homes, is causing a delay in the recovery of the real estate market, making it challenging for both homebuyers and investors involved in real-estate financing.
