The Great Homecoming: US Housing Market Sees Inventory Rebound

The real estate market is finally starting to see some relief as the number of homes for sale begins to return to more normal levels. A recent report from Realtor.com revealed that there has been a 6.2% increase in the total number of homes for sale, including those under contract but not yet sold, compared to the same time last year. This marks the seventh consecutive month of annual inventory growth, with a staggering 35.2% more homes actively for sale on a typical day in May compared to a year ago.

Despite the slow retreat of mortgage rates, home prices have remained stubbornly high due to the limited inventory available for potential buyers. Economist Danielle Hale and economic researcher Sabrina Speianu noted in the report that there will likely still be a significant gap between current housing inventory levels and pre-pandemic levels, with the market gradually closing this difference. Sellers who secured low mortgage rates before the pandemic have been hesitant to sell, limiting options for eager buyers.

Although the median listing price has not seen a significant change from last year, the rise in mortgage rates since May 2023 has led to an increase of about $158 per month, or 7.1%, in the monthly cost of financing a typical home. This means that in order to afford a median-priced home, income needs to increase by $6,400 to reach $119,700. However, Hale and Speianu predict a shift towards a more buyer-friendly housing market as mortgage rates are expected to decrease over the coming year and the number of homes for sale continues to rise.

While it is unlikely that mortgage rates will reach the lows seen during the pandemic, investors are only predicting one or two rate reductions this year. Currently, the average rate on a 30-year loan stands at 7.04%, down from a peak of 7.79% in the fall but still significantly higher than the pre-pandemic lows of 3%. Most homeowners are more inclined to sell their homes if their mortgage rate is 5% or higher, according to a Zillow survey, with about 80% of mortgage holders currently enjoying rates below 5%.

As the housing market gradually shifts towards a more balanced state and mortgage rates stabilize, buyers may find themselves in a more favorable position to make purchasing decisions. With inventory levels increasing and mortgage rates expected to decline, the housing market is poised for a transformation that could benefit both buyers and sellers alike.