Sellers are 'losing their grip' on the housing market as home prices cool, research firm says

• Sellers are quickly "losing their grip" on the housing market, Capital Economics said.
• That's because home prices are cooling, thanks to more inventory staying on the market.
• Still, the research firm forecast a 5% surge in home prices by the end of the year.

Sellers are losing their advantage in the US housing market.

That's because higher levels of inventory are starting to weigh on home prices, the research firm Capital Economics said. It's starting to reverse a trend that's persisted for the past few years, with tight inventory pushing home prices to record highs .

US home prices notched another record in May, but the pace of growth cooled. Prices were up 5.9% on a yearly basis, down from the 6.4% recorded the prior month, according to the S&P CoreLogic Case-Shiller price index .

This is happening as housing inventory rises. Active house listings rose past 800,000 in the US in June, Realtor.com data shows. Meanwhile, nearly 65% of homes on the market are going at least 30 days without being contracted, a Redfin analysis found.

"Another moderate 0.3% m/m rise in house prices in May adds to the evidence that sellers are losing their grip on the market due to increasing supply," Thomas Ryan, a North American economist at Capital Economics, said in a note.

More inventory is good news for buyers, who have been limited by fewer options and inadequate housing supply . Home prices are already starting to fall in key metros , such as in the Sun Belt, where housing demand is especially weak, Redfin said in a previous note.

But Capital Economics predicted home prices would continue climbing, forecasting a further 5% increase through year-end as a decline in mortgage rates boosts demand.

"It will take until 2025, or even 2026, for the market to become better balanced, where we have pencilled in price rises of 3% and
2.5% respectively," Ryan added. "Until recently, this had been an above-consensus forecast, but that is no longer the case."