A record number of Americans are searching “sell my house” on Google, the latest troubling signal of a potential housing market crash. What does this trend mean for home prices?

Well, it likely means a country-wide downturn could be in order. According to analysis from luxury real estate platform RubyHome, July searches for “sell my house” and “sell my house for cash” reached all-time highs in the U.S. This reflects a growing number of Americans trying to quickly exit the housing market before a pullback. Unfortunately, basic economics tells us this may in fact hasten a drop in real estate prices.

The limited supply of homes has been something of an inflationary force for home prices. With mortgage rates trending around 5.5%, it was almost expected for home growth to slow. Yet, for much of the year, it hasn’t. Indeed, even as demand for homes dropped this year, as reflected in record-low mortgage applications and rapidly falling home sales, home prices have tended to still inch upwards. This is mostly attributable to the pinched inventory of homes for sale in the country.

U.S. home construction has also been a point of conflict in the real estate industry. To put it simply: For nearly the past decade, homes haven’t been built fast enough to keep pace with the demand for housing. As millions of Americans collectively went inside during Covid-19, the already-slow home construction industry took yet another nosedive. The pandemic also increased the demand for homes due to rock-bottom lending rates.

Surging demand combined with low supply means home prices have been growing restlessly the past few years, climbing 40% since 2020. As recent data tell us, however, it seems a reversal is coming.

Wave of New Home Listings May Indicate Impending Housing Market Crash

The two major conditions that forced home prices up are quickly subsiding, even sooner than many projected. Firstly, the demand for homes has taken a sharp reversal off the back of rising mortgage rates. Secondly, the supply of homes in the U.S., something that has been constrained for the better part of a decade, is seeing a resurgence.

The U.S. currently has a nearly 11-month supply of new houses. This is both leaps and bounds from the pandemic-level 3.3-month supply, and the closest the country has ever been to the Great Recession’s 12.2-month peak. Home supply has grown over the past few months as a function of falling home sales. In August, nearly one in five sellers lowered their asking price to appease hesitant buyers.

Now, it seems home supply is in for another shock. The Google data surrounding terms like “sell my house” is so alarming because it likely reflects the fact that the market still has room for further saturation. The housing market may soon face a flood of new panic listings, which would put substantial downward pressure on prices.

From June to July, home prices fell 0.77%, the first drop since the start of the pandemic. Many economists never expected home price growth to reverse, rather than simply slow its course. Now, it seems home prices could be in for a sharp decline.

How Much Could Home Prices Fall?

The simple fact is that what was once considered a rebalancing of housing’s growth-centric demand and supply is quickly becoming an imbalance of the opposite variety.

Home supply is finally returning, at perhaps the worst possible moment. Demand for homes is at its lowest level in years. With the supply of real estate rapidly growing, prices are liable to plummet.

Depending on who you ask, an impending housing downturn could take several different forms. Some still maintain home prices will continue growing, albeit at a slowed rate, through 2023 and 2024. Others foresee a mild nationwide decline, benchmarked by more vitriolic drops across overvalued regional markets.

Mark Zandi, Moody’s chief economist, believes housing will feel a mild, single-digit correction, rather than a full housing market crash. In a tweet from August, Zandi elaborated on his reasoning.

Housing is struggling. Homes sales have cratered, homebuilding is slumping, and house prices have begun to roll over. Moody’s repeat sales price indices are still up year-over-year in most places given the strong gains through this spring. But prices have gone soft this summer. pic.twitter.com/qcaAK1CWBt

— Mark Zandi (@Markzandi) August 27, 2022

The housing industry remains touch-and-go. According to National Association of Realtors President Jerry Howard, housing is “already” in a downturn. The worst, however, may still be yet to come.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.