When you hear in the news that homes are unaffordable for a lot of Americans and inventory is rising, you probably start to worry that the housing market is in trouble.
While it is true that there are more homes on the market compared to this time last year and high rates are keeping potential home buyers at bay, it’s important to get some historical perspective on home prices and inventory. Just because there are more homes for sale and prices have moderated does not mean the market is crashing – and the numbers clearly show this.
Let’s jump into the most recent price and inventory data from Realtor.com to see what the market looks like compared to the last 5 years.
Inventory Is Up From Last Year, But Still Far Below Pre-Pandemic Levels
There were 67.8% more homes for sale in February compared to the same time in 2022. This means that there were 234,000 more homes available to buy this past month compared to one year ago.
But while the number of homes for sale is increasing, it is still 47.4% lower than it was before the pandemic in 2017 to 2019, nationwide. This means that there are still fewer homes available to buy on a typical day than there were a few years ago.
There are 60,000 fewer single-family homes on the market now than there were at the beginning of the year. With the market slowing down over the last six months, a lot of people expected rising inventory in the first quarter of 2023, but each week so far the data has shown the opposite. There are fewer new sellers and slightly more buyers.
Home Prices Are Actually Increasing, With Fewer Price Cuts
Fewer new sellers and more buyers bode well for home prices, and we are already starting to see them tick back up. The national median list price grew to $415,000 in February, up from $406,000 in January.
When you hear in the media that home price growth has declined, it does NOT mean that home prices have declined. It just means that prices are growing at a slower pace.
This is clearly shown in the chart below. The median listing price is up from the beginning of the year, but below the peak of last year – and this is normal! Home prices peak every year in the Summer and then decline in the Winter. Other than this time in 2020 right when the pandemic started, we are right on track with the typical home price trajectory.
If there’s no rush to buy, then those homes that sit on the market may need a price cut. But with the unexpected levels of demand that have hit the market this year, the amount of price reductions has been falling.
The percentage of homes with price reductions increased from 5.4% in February of last year to 13.0% this year. But while this number is much higher than last year, it still has dipped below 2017 to 2019 pre-pandemic levels, and has actually dropped even more than it typically does this time of year. According to Realtor.com, price reductions act as a leading indicator to median list price growth. which could signal a cushion for price growth.
The Bottom Line
Supply and demand economics are still working to keep home prices steady. There are still plenty of people out there who want to buy homes even in the face of higher rates. The problem is the majority of homeowners today have an interest rate on their mortgage below 4%. Many homeowners are opting to stay put instead of moving to another home with a higher borrowing cost.
When so many homeowners are rate locked and reluctant to sell, it’s a challenge for a housing market that needs more inventory. However, we still believe rates will continue to fall this year, and that could mean more people will be willing to move as that happens.
What does this mean for you? If you can afford it, now is a great time to buy. The chances are very high that you will be able to get a great deal on a home and more favorable terms on your mortgage if you buy within the next few months. Once winter is over and rates are even lower, competition will increase and prices will go up.
Remember, wealth is not created by timing the market – it’s created by time IN the market. The sooner you buy a home, the sooner you will start building equity and be one step closer to financial freedom.