December brought good tidings to homebuyers in the real estate market.

Nationally, median home list prices dropped about 11% from their peak over the summer to hit $400,000 in December, according to a recent Realtor.com® report. While prices were still up by about 8.4% year over year in December, this was the first time in a year that they rose by only single digits.

In another holiday gift for home shoppers, the number of properties for sale nationally shot up more than 50% compared with a year ago. And homes are sitting on the market for longer, giving buyers an opportunity to think about whether this is the right home for them instead of having to put in an offer on the spot.

Mortgage interest rates even dipped from over 7% to the 6% range last month. Rising rates were responsible for cooling off the housing market, as many buyers couldn’t afford the higher monthly payments on a home after rates more than doubled over the course of 2022.

“Prices are moderating. Mortgage rates came down. And there are more homes for sale,” says Realtor.com Chief Economist Danielle Hale. “It’s a continuation of what we’ve been seeing.”

Price increases are slowing as the hot real estate market fizzles

Higher mortgage rates put a stop to the whiplash-inducing price increases and manic bidding wars that defined the COVID-19-era real estate market. Back when rates were in the 2% and 3% range, many buyers could afford the higher home prices because their monthly mortgage payments were low. But when rates spiked, so did mortgage payments—and those higher prices suddenly became unmanageable for many buyers.

That lack of buyers resulted in about 13.6% of all home sellers reducing their listing prices in December, up from 7.1% who made price cuts a year earlier.

Median listing prices fell in nine of the 50 largest metropolitan areas year over year in December. New Orleans saw the largest price drop, at -4.4% year over year in December. It was followed by Denver (-4%)= and Austin, TX (-3.4%).

However, “Even though prices are coming down in some places, mortgage payments are still higher because mortgage rates have moved up so much over the last year,” says Hale.

Monthly mortgage payments were about 59% larger than they were in December 2021. Buyers are financially tapped out, paying nearly $750 more a month for a median-priced home. (This assumes they put down 20% and doesn’t include taxes, insurance, and homeowners association fees.) That’s significantly higher than rising rents and inflation.

On the other end of the spectrum, the largest annual increases in listing prices were in Milwaukee (46.2%), Memphis, TN (34%), and Miami (20.4%). The first two are lower-priced areas, where median list prices were $375,000 and $325,000 respectively, well under the national price tag of $400,000.

Meanwhile, prices continued to rise in Miami, one of the real estate market darlings of the pandemic era that attracted scores of companies and new residents relocating to its sunny shores over the past few years. The median list price in the Magic City metro area was $590,000 in December.

More homes are for sale, but not enough to end the housing shortage

Since the pandemic began and buyers battled it out for just about every home that hit the market, housing inventory has been at crisis-level lows. It seemed that just as soon as an attractive property went up for sale, it was under contract by the end of the weekend—if it even made it that long. However, that frenzy has mostly evaporated, resulting in more available properties.

There were 54.7% more homes, or 244,000 additional properties, on the market in December than there were last year. While that sounds great, it’s still a whopping 38.2% less than in the years preceding the pandemic from 2017 to 2019.

“It’s a big step in the right direction, but the market isn’t back to normal yet,” says Hale.

And although overall housing inventory is rising, the number of new listings was down 21% year over year in December. Sellers are reluctant to give up their low mortgage rates by selling their homes and then having to take out a new loan at a higher rate to purchase a new home.

“If they were to sell their home, they have to find somewhere else to go,” says Hale. “And it’s still not an easy market for most buyers.”

Add in recession fears, and many would-be buyers are simply putting their house hunts on hold. That’s resulted in more homes staying on the market for longer, a median of 67 days—11 days longer than in December 2021—adding to the desperately needed housing inventory.

In the Western region of the country, where prices are also the highest, there was a 110.2% annual increase in inventory. Raleigh, NC, experienced the largest increase in homes on the market, at 226.2% in December, followed by Nashville, TN, at 226%, and Austin, TX, at 186.6%.

As Hale explains, “It’s clear buyers are pulling back and sellers are not enthusiastic about this housing market.”

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