Economists note that the number of homes for sale in the U.S. is slowly returning to normal, a trend described as "incredible." While current high mortgage rates deter some buyers, the increased inventory is a positive signal for homebuyers.
According to the latest monthly housing report from Realtor.com®, the total number of homes for sale increased for the seventh consecutive month in May. Realtor.com Senior Economist Ralph McLaughlin stated, “The sharp rise in inventory is a notable phenomenon. The number of homes on the market increased by 35.2% compared to the same period last year, marking an important trend towards normalization.”
Realtor.com Economic Data Manager Sabrina Speianu believes that while the current housing market still favors sellers, the anticipated decline in mortgage rates next year and the increasing number of homes for sale will gradually shift the market towards buyers. She noted, “As mortgage rates begin to drop next year, we expect the market to become more favorable to buyers.”
In May, the national median home price continued its seasonal rise, increasing by 0.3% to $442,500, up from $430,000 in April. In comparison, the median home price in May of last year was $441,000. The relative stability in home prices is primarily due to the listing of more affordable homes. McLaughlin pointed out, “The inventory of low-priced homes is growing faster than other categories. Homes priced between $200,000 and $350,000 increased by 46.6%, which is good news for budget-conscious buyers.”
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Apart from the total price, buyers and sellers should also pay attention to the median price per square foot. This value increased by 52.7% in May compared to May 2019. McLaughlin emphasized, “Changes in the price per square foot are a more reliable indicator of home value growth over time.”
For sellers who purchased homes before the COVID-19 pandemic, there is more good news: the typical listing price in May of this year increased by 37.5% compared to May 2019. Despite the overall rise in homes for sale, high mortgage rates are causing some sellers to wait.
In May of this year, the number of new home sales increased by 6.2% compared to the same period last year, but this increase was only half of the 12.2% growth in April. Speianu explained, “Sellers are often buyers themselves, so they are cautious in response to rising mortgage rates. Although the number of newly listed homes is still higher than last year, the growth has slowed.”
If mortgage rates drop as expected, more sellers will enter the market. Speianu predicted, “As rates gradually decline next year, sales activity will return to normal.”
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In May of this year, active housing inventory increased in all four U.S. regions compared to last year. The South experienced the fastest growth at 47.2%, followed by the West at 34.5%, the Midwest at 20.5%, and the Northeast at 9.4%.
Compared to last year, the number of homes for sale increased in all 50 major cities. The fastest-growing cities were Tampa, Florida (+87.4%), Phoenix (+80.3%), and Orlando, Florida (+78.0%). McLaughlin explained, “These markets thrived during the pandemic when buyers couldn't find enough inventory. Now, the increase in inventory indicates that supply and demand balance in these areas is improving as the market returns to normal.”
While only 12 of the 50 largest metropolitan areas had inventory levels above the typical levels from 2017 to 2019 in May, this number increased from 7 the previous month. The major cities with inventory levels above pre-pandemic levels are primarily in the South and West, including Austin, Texas (+33.6%), San Antonio (+31.8%), and Denver (+22.0%).
Although the housing supply in May of this year improved compared to the past three years, Speianu noted, “Compared to the typical levels from 2017 to 2019, inventory is still down by 34.2%.” In May of this year, homes were listed on the market for an average of 44 days, one day longer than last year. Speianu explained, “With inventory continuing to grow, home sales remain sluggish. May marked the second consecutive month where homes stayed on the market longer than last year. However, the typical home still stays on the market 8 days less than the average time from May 2017 to 2019.”
