Home sellers are cutting prices as pipelines slow

Buyers finally have leverage, but they aren't using it, and that gap is now the central problem in purchase lending. 

The typical home sells below list price in 41 out of the U.S. largest metros according to Best Interest Financial's analysis of Redfin data. Price-drop activity declined compared to the previous year in 31 of the 50 metros studied. 

However, these conditions might not last. Even as current owners are cutting prices in those markets, the sale-to-list-price ratio has ticked up in more than a third of those cities listed, adding to the growing evidence that declines are not guaranteed. 

"Buyers who act quickly may find sellers more open to negotiations than those who delay their search," reads the report. 

That leverage is not converting to closings. Starter inventory rose 4.5% compared to the previous year in June and 25% of those listings cut price, according to a report from Zillow. 

Sales of houses aimed at first-time home buyers fell 5.4% year over year in May. Luxury ran the opposite direction as inventory was down 5.2% and sales were up 6.2%. The most extreme case was in San Francisco, where luxury sales were up 21.6% while starter sales slipped 1.2%, with 22.2% of starter listings cutting price against 9.4% of luxury listings.

"Starter home buyers today have more options, more negotiating power, and sellers who are more willing to deal. The challenge is that the same financial pressures making it harder to save for a down payment are also making it harder to take advantage of that opportunity," said Kara Ng, senior economist at Zillow.

Geography matters more than the national number, as Texas metros dominate the buyer-power rankings, while Hartford, San Francisco, Chicago, Milwaukee and Providence remain seller controlled with 2.4 months of supply and homes selling at 101.2% of the list on average. 

Affordability remains a concern underneath it all, as starter homes start at $1 million in many U.S. cities. For loan officers, this means shifting spending and marketing towards places first-time buyers have more purchasing power.

First-time buyers are the entry point for the customer lifecycle, from the future refinance to the servicing capture. They represent the majority of originations and are rate-sensitive. Meanwhile, luxury borrowers refinance quickly when rates dip, so they are good for revenue and some of the more proactive originator/servicers like Rocket, try and retain their customers.

The divergence is already reshaping the loan mix

Starter and luxury buyers also do not use the same products and when one segment contracts and the other expands, production moves upmarket.  Luxury borrowers typically take mortgages above the conforming loan limits. On the other hand, many first-time buyers obtain Federal Housing Administration-insured mortgages, with lower down payments and credit scores.

Still, credit availability in June fell to its lowest point since late 2025, as lenders pulled back on federal lending programs. Non-QM continues to grow, as specialized lenders step in to fill the gap for non-standard buyers, even though these loans often come with higher interest rates and larger down payments.

Servicers should treat these market conditions as a warning sign. Borrowers who bought in the last two years with small down payments own very little of their homes. Where values have stalled or dipped, those owners cannot refinance into a cheaper payment, and they cannot sell without writing a check at closing, so the loan could land in loss mitigation.