5 markets where rising inventory is helping buyers
Affordability has remained a problem in much of the country, even as supply has increased. But a few areas, led by Tampa, are becoming more accessible.
A major theme of the U.S. real estate market in recent years has been worsening affordability, an issue at the heart of the slowdown in buyer activity. Even as supply began to increase this year, the situation showed little improvement — but that may be changing, at least in a few areas.
Research from First American found that in June, affordability improved in some areas and worsened in others. The cause? Uneven inventory growth across the country.
Affordability improved in only five of the 50 largest markets studied, with more than a dozen markets seeing below-average inventory growth and decreasing affordability. In four of the five markets with improving affordability, a faster pace of inventory growth appeared to make a difference.
When looking at the national numbers, the march toward a more balanced market seems to be gaining momentum. In Redfin's latest four-week rolling report, the typical U.S. homebuyer's monthly housing payment was $2,671, the lowest in four months and down $166 from the record set in April. It's still up 4.6% year-over-year, however, so affordability remains a challenge for many buyers.
If the Federal Reserve cuts interest rates in September, leading to lower mortgage rates, there could be more modest improvements in affordability, said Odeta Kushi, deputy chief economist at First American.
"However, real estate is inherently local, and the degree to which these factors lead to a more balanced housing market will vary by region," Kushi said.
Where affordability is improving: Among the 50 largest markets, Tampa saw the biggest change, with inventory jumping 62% year-over-year in June and affordability improving by 5%, according to First American's index.
"The faster housing supply increases, the more affordability improves and the strength of a seller's market wanes," said Mark Fleming, chief economist at First American.
Other markets that have seen inventory rise more than 20% and affordability improve include Denver (28% inventory growth, 7% improvement in affordability); Portland, Oregon (20% inventory growth, 3% improvement in affordability); and Raleigh, North Carolina (30% inventory growth, 2% improvement in affordability). Austin, Texas, notable as a pandemic boomtown, also saw affordability improve despite a slowdown in inventory growth.
Kushi said Austin is among those boomtowns that fall into the category of "the higher they rise, the harder they fall."
"The increase in mortgage rates has had an outsized effect on markets that saw some of the largest pandemic price gains," Kushi said.
Still a seller's market: More cities, however, are seeing slower inventory growth and further declines in affordability, especially in the Northeast and Midwest.
This includes Providence, Rhode Island (10% more inventory, 12% less affordable); Cincinnati, Ohio (13% more inventory, 11% less affordable); and Buffalo, New York (3% more inventory, 10% less affordable).
A few outliers: In five markets, however, a surge in inventory hasn't yet led to greater affordability. Those markets have seen inventory rise faster than the national average but are continuing to become less affordable as intense demand is quickly absorbing the new listings.
Memphis is leading the way in this category, with the market 13% less affordable than a year ago despite inventory increasing 26%. Seattle's market is 9% less affordable despite 25% inventory growth.