U.S. housing inventory is approaching levels not seen since the financial crisis, a further sign of ongoing difficulties for the sector and the economy as a whole.

According to recent data from the U.S. Census Bureau and the Department of Housing and Urban Development, the number of unsold, constructed homes reached 121,000 in July, the highest level since 126,000 in July 2009.

Why It Matters

The surging number of unsold homes has been interpreted as an indication of persistent weak demand, a trend also reflected in plateauing home prices and the dwindling number of “sellers’ markets.”

Economists and experts have warned that muted demand and overall weakness in the housing market could prove a further headwind for the U.S. economy, already burdened by low consumer confidence and fears over an imminent downturn.

What To Know

According to the Census Bureau’s August 25 report, sales of new single-family houses in July fell to 652,000 in July from 656,000 in June, now 8.2 percent below the rate of 710,000 for the same month last year. Median sales prices of new homes, meanwhile, have fallen 5.9 percent over the past 12 months to $403,800.

House price growth has slowed across much of the country, attributed by one expert to oversupply as well as financial struggles faced by prospective buyers.

As well as general economic difficulties, many believe buyers are being dissuaded by elevated mortgage rates. At a conference in June, Lawrence Yun, chief economist at the National Association of Realtors, said: “For new homebuyers, their monthly payment obligation has increased, and this is what’s killing the housing market. Mortgage rates are the magic bullet, and we’re waiting and waiting until those come down.”

Rates have fallen in recent weeks, according to data from organizations including the Mortgage Bankers Association (MBA) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Experts believe a further drop to 6 percent could prove “a magic mortgage number that will push Americans to buy.”

In addition to an increasing number of homes sitting on the market, home sales have also been falling through at staggering rates. According to a recent report from Redfin, 15.3 percent of home purchases were cancelled in July, the highest ever recorded for the month.

“Home purchases are falling through more than usual because high prices, high mortgage rates and economic uncertainty are making buyers uneasy,” the real estate brokerage wrote. “Buyers also have more homes to choose from than in the past, which means they hold the negotiating power in many markets and often aren’t in a rush.”

What People Are Saying

Moody’s chief economist Mark Zandi posted to X last month: “Housing will thus soon be a full-blown headwind to broader economic growth, adding to the growing list of reasons to be worried about the economy’s prospects later this year and early next.”

What Happens Next?

The next major shift for the U.S. housing market could depend on a Federal Reserve decision following its mid-September meeting. While the central bank is grappling with elevated inflation and a precarious labor market, some have pointed out that an interest rate cut could provide a boost for the housing market.