Bucking seasonal trends, home inventory is rising
Inventory could keep increasing as potential homebuyers ‘hit the brakes’ while mortgage rates remain elevated. Price cuts are also higher than usual.
Key points:
- Inventory was up 1.8% week-over-week, representing one of the biggest weekly jumps of the year.
- Inventory typically starts to decline in October as demand slows and sellers take homes off the market for the holiday season.
- Even with the recent bump, inventory remains well below levels seen over the past several years.
Available inventory is starting to climb again, which is good news for potential homebuyers — as long as they can handle surging mortgage interest rates.
In his weekly inventory update, Altos Research Founder Mike Simonsen noted that inventory climbed at one of its fastest rates all year, rising 1.8% compared to the week before. There are an estimated 546,000 single-family homes on the market, which is slightly below the same period a year ago, but Simonsen said it's unusual for inventory to be climbing at this point in the year.
"It's quite clear that homebuyers have hit the brakes waiting to see if mortgage rates recede from these multi-decade highs," Simonsen posted on X.
Simonsen noted that 38.2% of the homes on the market have taken a price reduction, which is also higher than normal for this time of year. A high percentage of reductions usually leads to year-over-year price declines, a pattern that was seen in the first quarter of this year after reductions climbed last fall
Inventory data for the rest of the month will provide clues about how much of an impact rising interest rates will have on home prices in early 2024. Simonsen expects inventory to continue increasing over the next two weeks, but if it continues into November, that would be a bearish indicator for home prices.
Growing inventory is not a sign that more sellers are listing, Simonsen emphasized, because new listings remain quite weak. Rather, it's a reflection of how few homebuyers are out there. Simonsen said new listings are running even lower than they were a year ago, when interest rates spiked above 7% for the first time in decades.
So far, home prices are not falling because inventory has remained so tight. Altos Research put the median list price at $439,000, up about 2% from a year ago. Simonsen expects the slight year-over-year price increase to hold through the remainder of the year.
When will more listings finally hit the market?
Any increase in inventory could be helpful for potential buyers, especially if prices or mortgage rates start trending down. Last month, available inventory was down 42.7% compared to pre-pandemic levels in September 2019, according to Realtor.com's monthly report, and down 4% year-over-year — a time when inventory was already tight.
Zillow noted that while new listings declined in September compared to August, the drop was smaller than in typical years. That could be a sign that some homeowners can't wait any longer to sell, due to life events like a new job or a change in their family situation, and are willing to part with their locked-in low interest rate.
Even if listings increase, those homes may end up sitting on the market longer as buyers balk at steep mortgage rates.
"While attractive listings are still moving at a brisk clip, competition among buyers is fading quickly," said Jeff Tucker, Zillow's senior economist.