Zillow's May Market Report: The Housing Recovery Is Back on Pause
For anyone who had been cautiously optimistic about a stronger year for real estate in 2025, Zillow's May market report delivers a sobering reality check. Home sales and new listings both fell behind last year's levels, mortgage rates continued their upward march, and inventory growth — while still technically positive — is slowing to a near standstill. The brief momentum that gave buyers and sellers hope earlier in the year appears to have stalled, and the second half of 2025 may be more challenging than many analysts anticipated.
New Listings Pulled Back at the Worst Possible Time
Historically, May and June represent the seasonal peak for new listings. Sellers have traditionally rushed to list their homes during the spring selling season, taking advantage of warmer weather, motivated buyers, and stronger market conditions. This May, however, that pattern broke down in a meaningful way.
New listings ticked down 0.8% month over month in May, a figure that may seem modest in isolation but is far more significant in context. Compared to the same period last year, new listings are now 4.1% lower — a gap that reflects a growing reluctance among homeowners to put their properties on the market. Many existing homeowners remain locked into low mortgage rates secured during the pandemic era, making the prospect of selling and purchasing a new home at today's higher rates deeply unattractive. This so-called "lock-in effect" continues to suppress supply at a time when buyers are already struggling with affordability.
The timing of this pullback is particularly consequential. If sellers are already stepping back during what should be the most active period of the year, the outlook for listing activity in the slower summer and fall months looks even more uncertain.
Home Sales Rose Month Over Month but Missed the Mark Annually
On the surface, a 4.8% month-over-month rise in sales sounds encouraging. Seasonal patterns alone explain much of this uptick — warmer months naturally generate more transaction activity as buyers become more active and deals that were started in the spring close escrow. However, digging into the annual comparison tells a different story.
May sales declined 2.9% compared to the same month last year, falling off what analysts consider the historic trend line for a recovering market. This annual shortfall is a signal that demand, while present, is being constrained. Rising mortgage rates are the primary culprit, eroding buyer purchasing power and pushing some would-be buyers back to the sidelines. The gap between what buyers want and what they can actually afford remains wide, and until that gap narrows, sales volume will continue to underperform historical norms.
Inventory Growth Is Slowing — and Could Soon Reverse
One of the few sustained bright spots in the housing market over the past two-plus years has been annual inventory growth. May marked the 30th consecutive month of year-over-year gains in available homes, a streak that has provided buyers with at least marginally more options than they had at the peak of the pandemic-era inventory drought.
But that streak is showing serious signs of strain. Inventory rose only 1% from last year in May, a dramatic deceleration from the double-digit annual gains seen in earlier months of this cycle. More alarming, weekly data from Zillow suggests inventory could flatline — meaning zero annual growth — within the next four weeks. If that happens, it would represent the effective end of the inventory recovery.
There is another dimension to this concern worth noting. If inventory peaks in June rather than later in the summer, that would be unusually early on the calendar. A June peak would mean fewer choices for home shoppers heading into July, August, and September — traditionally active months for real estate transactions. Fewer available homes typically translate into slower sales, and that combination could cast a shadow over the second half of 2025 for both buyers and sellers.
Home Values and Mortgage Costs: The Affordability Squeeze Continues
The typical U.S. home value climbed to $368,720 in May, reflecting a modest 0.6% month-over-month increase as tracked by the Zillow Home Value Index (ZHVI). On an annual basis, home values are 0.8% higher than they were a year ago — a sign that prices have not collapsed, even in the face of softening demand.
When rising home values are combined with higher mortgage rates, the impact on monthly payments becomes significant. The cost of a typical mortgage reached $1,861 in May, representing a 1.1% increase from April. For buyers already stretched thin, that additional monthly cost is meaningful and can be the deciding factor between moving forward with a purchase or waiting on the sidelines.
There is a silver lining embedded in these numbers, however. Despite the month-over-month increase in mortgage costs, typical mortgage payments remain 3.1% lower than they were in May of last year. Mortgage rates, while elevated, have not yet returned to the peaks seen in late 2023, which means affordability — while tight — is still marginally better on an annual basis for buyers who are ready to act.
What This Means for Buyers and Sellers in the Months Ahead
The Zillow May report paints a picture of a housing market that is neither collapsing nor recovering with any real momentum. For buyers, the short-term window of relatively improved affordability compared to 2024 remains open, but it may not stay that way for long. If inventory peaks early and mortgage rates hold steady or rise further, the second half of 2025 could offer fewer choices at higher prices.
For sellers, the calculus is equally complex. Pulling back from the market in May — during what should be the busiest listing season of the year — suggests that many homeowners are waiting for conditions to improve before making a move. But if rates remain elevated and affordability continues to strain buyer demand, that wait could extend well into 2026.
The housing recovery that many hoped would gain traction in 2025 is not dead, but it is clearly on pause. The key variables to watch in the coming weeks are mortgage rate movements, weekly inventory data, and whether June sales figures show any meaningful improvement over May's disappointing results. Until those signals turn more decisively positive, both buyers and sellers would do well to approach the market with measured expectations and careful planning.