Housing project in Oceanside, California
Development and construction is on at a large scale housing project of over 600 homes in Oceanside, California, June 25, 2018. The demand for housing has seen its largest decline in two years, according to reports Wednesday. (Photo: REUTERS/Mike Blake)

The housing market continues to struggle as the demand for homes saw its most significant decline in over two years, according to a monthly analysis released Wednesday.

Amid sky-high home prices, rising interest rates on mortgages and a shortage of entry-level listings, the demand for housing has dropped 9.6 percent in June from the same time last year, per a monthly index from Redfin. This is the most substantial decrease since April 2016.

That decline came from a 2.2 percent decrease in the number of homebuyers requesting tours and a 12.2 percent drop in requests made on houses from May to June. The number of people demanding home tours also fell 6.1 percent annually in June and there were 15 percent fewer offers made on homes, the report said.

Based on the 15 major metropolitan housing markets, the number of homes for sale went down 3.8 percent. The number of newly listed houses on the market in June also fell by 1.6 percent.

Places like Seattle and Washington, D.C., which both have a short supply of homes available, saw double-digit increases in homes for sale in June. However, homebuyer demand dropped 3.7 percent that same month in those cities.

For the year, the demand decreased by 14.8 percent and by 14 percent respectively. That may be because buyers are a bit more frugal based on locale, experts say.

"As much-needed large inventory increases finally arrive in some of the hottest markets, buyers are taking the opportunity to be choosy, offering only on well-priced homes," said Pete Ziemkiewicz, head of analytics at Redfin.

"With more homes to go around, buyers don't need to bid as aggressively to win bidding wars, so prices, while still growing, are growing a lower rate, and home sales are slowing."

Meanwhile, in other markets where home prices aren’t as high, the housing demand continues to increase. Atlanta and Chicago saw better demands, according to the Redfin index.

Homebuyer demand increased by 4.3 percent and 1.7 percent, respectively in June, the report said. This comes despite both cities seeing a decline in their inventory.

Mark Fleming, First American Chief Economist, told CNBC on July 31 that he thinks the housing market could improve with the addition of more homes.

"We have a ten-year-long run tail wind ahead of us and we’ve only built about 5 million new housing units," Fleming said. "That to me is the larger issue. We need to build a lot more and that’s not easy. And if we don’t, prices will continue to rise."