The Housing Market Is ‘Out of Whack.’ How to Make Sense of It All.

Homes are sitting on the market for longer than before the pandemic. (Mario Tama/Getty Images)

On the surface, the housing market looks inhospitable for both buyers and sellers. But under the hood, economists are closely watching the data for signs of a shift.

Shifting to what, exactly, is unclear: if certain movements are more than a blip, that could foreshadow a housing correction in the form of lower prices as buyers continue to balk, while other changes could usher in a sales pickup.

“There are a few things that we have seen that have been kind of out of whack lately,” says Joel Berner, a senior economist at Realtor.com.

Here are three housing data points to follow closely in the coming months:

Days on the Market

It wasn’t long ago that houses couldn’t stay on the market long enough to be counted accurately in monthly data collection. Now, they’re sitting for longer than before the pandemic, according to recent Realtor.com data. (Barron’s and Realtor.com operator Move are both owned by News Corp).

In July, homes spent a median 58 days on the market, Realtor.com’s data show, the most for any July since 2017. It could be a blip, but the stat is “something we’re keeping a really close eye on,” says Berner. “If they get much slower than they were prepandemic, then we might be seeing something that looks like a—not to use an ugly word—but like a correction,” he says.

A correction may be an ugly word to sellers and homeowners—but not buyers. Prospective buyers shopping for deals might find them in places where homes are sitting longer. About a fourth of the 100 largest metropolitan areas had their slowest July since at least 2016, Realtor.com data show, including Los Angeles, Dallas, Phoenix, San Francisco, and Seattle.

But buyers can only benefit from lower prices if sellers keep their houses on the market. Delistings have recently gone up, Bermer notes. “People who have the option are looking at the market and deciding, you know, now is not the right time for us,” Berner says.

“There’s not enough demand in some of these markets to keep up with the number of listings that are on the market, and so people are deciding to delist,” he says.

Construction Data

New homes represent just a sliver of the overall housing market—but changes in data related to home building carries broader implications.

Data show single-family home builders slammed on the brakes in recent months. In June, builders started construction on new homes at the slowest seasonally adjusted pace in about a year, Census data show. Authorizations to build new homes dropped to their slowest level since March 2023, foreshadowing a steeper slowdown to come.

“Builders are extremely good at forecasting future housing demand,” says Orphe Divounguy, a senior economist at Zillow. “They are increasingly wary of rising input costs in a falling price environment.”

It should concern buyers who planned to look to the new home market in search of lower mortgage rates or other perks. While the typical homeowner might be unwilling to shoulder costs to lower a buyer’s mortgage rate or upgrade their countertops, builders often do to keep homes selling, even at the expense of their margins. In July, 62% of builders responding to an industry survey said they offered some sort of sales incentive, the National Association of Home Builders said last month.

A pullback in housing starts could be a sign that the days are numbered for widespread discounts on new homes. That could be a plus for investors, but presents more hurdles for buyers. “The recent builder pullback does not bode well for closing large persistent housing deficits,” Divounguy said.

Employment and Inflation Data

President Donald Trump might not be happy with the latest jobs report. But it gave those shopping for a lower mortgage rate reason to celebrate.

July’s weaker than anticipated jobs report and prior months’ revisions shocked markets—and dragged down mortgage rates in the process. Mortgage rates tend to move with the 10-year Treasury yield, which dropped in the wake of the employment report. On Tuesday, the yield was at its lowest level since April 30.

The decline looks to have shaved nearly 0.2 percentage point off mortgage rates, according to Mortgage News Daily readings. The website’s survey was showing a 30 year fixed rate of 6.58% on Tuesday, down from 6.75% on Thursday.

Because of the close connection between home financing costs and economic indicators, employment and inflation data bears watching from here. Signs of a strong economy and rising prices, such as hotter-than-expected inflation data or strong jobs numbers, could send mortgage rates back up. But weak readings, like last week’s employment data, could drive them lower.

It could take time—and sustained declines—to dramatically change demand. Mortgage applications during the week ended last Friday rose a seasonally adjusted 2% from the week prior. “Small movements have not unleashed the pent-up demand,” notes Jessica Lautz, the National Association of Realtors’ deputy chief economist.

But “if mortgage rates dropped, there would be a considerable increase in housing demand,” she says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com