What does excess inventory in a real estate market often lead to?

Excess inventory in a real estate market typically signals that there are more properties available for sale than there are buyers looking to purchase them. This surplus can create downward pressure on home prices because sellers may need to lower their prices to attract buyers amid the competition of many listings. When sellers become more willing to negotiate or lower their asking prices to stand out in a crowded market, it often results in overall lower home prices across the market. As properties languish on the market longer without selling, the expectation of price reductions tends to increase, contributing to a trend of declining prices. This is a common phenomenon in real estate economics, where supply and demand dynamics play a critical role in determining market values.