Inventory trickling in, but don’t expect a flood
All eyes are on inventory levels — which are up slightly compared to a year ago — as the market gears up for spring.
- Several researchers are reporting year-over-year increases in inventory, though it remains far below pre-pandemic levels.
- More homeowners seem open to selling, even if that means giving up their low-rate mortgage.
- That could improve the spring market for buyers, but the direction of mortgage rates will continue to influence demand.
With mortgage rates holding steady above 6.5%, home inventory is slowly beginning to build ahead of the spring homebuying season.
On Jan. 15, there were around 505,000 homes on the market, according to weekly data from Altos Research. That's up nearly 7% from a year ago and up 1.2% compared to the previous week. The inventory gap between last year at this time — when mortgage rates were closer to 6% — compared to this year has been increasing in recent weeks, said Altos Founder Mike Simonsen.
Inventory trends will become clearer in the coming weeks as the weather improves and potential home sellers decide if this spring is the right time to list.
"There is no signal of any flood of inventory… but it certainly looks like 2024 will have easier conditions for buyers than last year," Simonsen said in a weekly YouTube presentation.
And he's not the only researcher seeing a gradual increase in inventory. In Zillow's December market report, Chief Economist Skyler Olson noted that new listings were up 2.1% year-over-year, even as total inventory remains 36% below pre-pandemic levels. Despite the shortfall, Olson said "inventory has marked a slow but steady recovery" since May.
In its monthly housing report, Realtor.com estimated that the number of active listings in December was nearly 5% higher compared to a year ago.
More homeowners willing to list
So what's behind the rise in inventory? One factor may be an increase in homeowners who are willing (or need) to sell, even if that means giving up their locked-in low interest rates.
Zillow's report included survey data indicating that more homeowners are open to selling compared to a year ago. And a recent report from Redfin found that the percentage of homeowners with mortgage rates under 5% is now around 79%, down from nearly 86% a year ago.
That's promising news for buyers hoping to make a purchase this spring, said Daryl Fairweather, chief economist at Redfin. "Homebuyers should have a slightly easier time… but from a historical perspective it's still not a great time to be a homebuyer," Fairweather said in a Jan. 17 interview with CNBC.
Many buyers appear to agree with that assessment. In Fannie Mae's most recent Home Purchase Sentiment Index, only 17% of consumers said it was a good time to buy. That attitude has likely tamped down demand, allowing inventory to build.
2023 all over again?
While inventory may be up slightly, it's still too early to know if 2024 will follow the same pattern as 2023. Inventory improved early last year, but as mortgage rates remained in the low-to-mid 6% range in the first quarter — after spiking above 7% in Nov. 2022 — demand rebounded and gobbled up the small amount of extra inventory that had built up.
Mortgage rates have been stable for the past several weeks and may not fall significantly in the near term. The latest economic data reflects a relatively strong economy and inflation in the 3% range, so the aggressive rate cuts the Federal Reserve hinted at late last year may not happen before the second half of 2024.
If mortgage rates stick around 6.5% — and home prices remain high — demand could be suppressed, allowing inventory to build further. Another scenario is that impatient buyers may find ways to make the numbers work.
Heading into the spring market, Fairweather expects we'll see more inventory compared to last year, but not a lot more.
"The good news for buyers is that it's not realistic for homeowners to stay put forever, and rates have come down a bit from record highs. The strength of homebuying demand will depend heavily on where mortgage rates go from here," Fairweather said in an email.