Home sellers have been celebrating for the past few years, enjoying a seller’s market fueled by skyrocketing prices. But is this a gold rush destined to last forever? Recent data suggests a potential shift on the horizon. While home prices have indeed surged – a staggering 37.5% since May 2019 according to Realtor.com® – there are signs that the tide may be starting to turn. Let’s delve into the data to understand what this means for the housing market and whether the boom times for sellers are coming to an end.
Time on Housing Market and Price Trends: A Mixed Picture
A crucial factor for both buyers and sellers is the time a home spends on the market and overall pricing trends. Let’s explore what the data reveals:
- Homes on the Market Slightly Longer: Compared to May 2023, homes are spending a tad longer on the market – an average of 44 days this May. This is a one-day increase and marks the second consecutive month where homes have seen slightly longer listing times. This trend can be attributed to the ongoing rise in inventory and a potential softening of demand due to higher mortgage rates.
- Still Faster Than Pre-Pandemic: Despite the slight increase, the typical time a home spends on the market remains more than a week (eight days) less than the pre-pandemic average (May 2017 to 2019). This indicates that demand is still relatively strong, but not quite as intense as it was during the peak seller’s market.
- Regional Variations in Time on Market: Similar to seller activity and inventory, time on the market also shows regional variations. The South, which has seen the most significant inventory growth, also has homes staying on the market for four days longer compared to last year. In contrast, homes are selling more quickly in the Northeast (-5 days) and Midwest (-3 days) compared to May 2023. This could be due to tighter inventory and continued strong buyer demand in these regions.
- Median List Price Stays Flat, But Price per Square Foot Increases: The national median list price hasn’t changed dramatically, hovering around $442,500 compared to $441,000 last May. However, a deeper look reveals a rise in the price per square foot (3.8% year-over-year). This suggests that the growth in inventory is primarily driven by smaller, more affordable homes.
- Significant Price Growth Since Pre-Pandemic: While the median list price might not show a massive jump year-over-year, it’s important to consider the longer-term perspective. Compared to May 2019, the typical home listed this year has a significantly higher asking price (37.5% increase). When adjusted for the shift towards smaller homes, the price per square foot shows an even more impressive increase of 52.7%. This highlights the substantial appreciation homes have experienced in the past few years.
Therefore, the time homes spend on the market offers a mixed picture. There’s a slight increase nationally, but it’s still faster than pre-pandemic levels. Regionally, variations exist, with the South seeing longer listing times and the Northeast and Midwest experiencing quicker sales. While the median list price remains relatively stable year-over-year, significant price growth is evident when compared to pre-pandemic times. This trend is particularly noticeable when considering the price per square foot.
Housing Inventory on the Rise, But Still Below Pre-Pandemic Levels
While sellers have enjoyed a seller’s market for a while, a crucial factor influencing their dominance is inventory. Here’s a closer look at what the data reveals:
- Inventory Grows, But Gap Remains: There’s positive news for buyers – the number of homes actively for sale has increased by a significant 35.2% compared to May 2023. This marks a streak of seven consecutive months with annual inventory growth. However, it’s important to note that inventory is still down 34.2% compared to pre-pandemic levels (typical May from 2017 to 2019). While this gap is slightly smaller than last month, it indicates the market is still recovering from the sharp decline in inventory seen in summer 2020.
- Southern Comfort: The South is leading the charge in inventory growth, with a staggering increase of 47.2% year-over-year. This has resulted in a more balanced market in the region, with price growth stabilizing compared to areas with tighter inventory. The West follows closely with a 34.5% rise, while the Northeast and Midwest see more modest growth (9.4% and 20.5%, respectively).
- Expected to Surpass 2020 Levels: Looking ahead, inventory is expected to surpass 2020 levels later this summer. However, it’s important to remember that the significant drop in 2020 was a result of the unique circumstances surrounding the pandemic. A more meaningful comparison would be with pre-pandemic levels, which will likely take longer to achieve.
- Focus on Smaller, Affordable Homes: The increase in inventory isn’t spread evenly across all price ranges. Notably, the growth in homes priced between $200,000 and $350,000 has outpaced all other categories, particularly in the South. This suggests a rise in the availability of smaller and more affordable options for buyers.
Hence, while inventory is undeniably on the rise, a return to pre-pandemic levels remains a work in progress. The South is leading the way with increased listings, particularly in the more affordable range. This trend, alongside overall inventory growth, suggests a gradual shift towards a more balanced market for both buyers and sellers.
Seller Activity and the Impact of Rising Mortgage Rates
Sellers are a key player in the market as well. Let’s see how seller activity is faring in this evolving landscape:
- Sellers Still Listing, But Growth Slows: Although sellers remain active, the data reveals a moderation in their enthusiasm. Newly listed homes increased by 6.2% compared to last May, marking the seventh consecutive month of growth. However, this is a significant slowdown compared to the 12.2% growth rate observed the previous month.
- Mortgage Rates Cause Caution: The recent rise in mortgage rates, a response to stubbornly high inflation, seems to be impacting seller behavior. Sellers, many of whom are also homebuyers themselves, are likely becoming more cautious as financing costs increase. This explains the slower growth in new listings compared to last month.
- Normalization Expected as Rates Dip: As mortgage rates are expected to decline over the next year, seller activity is likely to return to a more normal pace. This, combined with the ongoing rise in inventory, could lead to a more buyer-friendly market in the future.
- Regional Variations in Seller Activity: The data also reveals regional variations in seller activity. The West saw the most significant increase in newly listed homes (9.3%), followed by the South (8.1%). The Northeast and Midwest, however, experienced a decline in new listings compared to last year. This could be due to tighter inventory in these regions, giving sellers more leverage and potentially leading to a slower pace of new listings.
Thus, seller activity remains positive, but the sizzling pace has cooled down a bit. Rising mortgage rates appear to be causing some caution among sellers. However, with anticipated future declines in rates, seller activity is expected to pick back up. It’s also important to consider regional variations, as some areas see more active sellers than others.
A Look Ahead: A More Balanced Market on the Horizon?
The housing market data paints a picture of a market in transition. While sellers have enjoyed a clear advantage for a while, recent trends suggest a potential shift towards a more balanced playing field. Here’s what we can glean from the data to understand what might lie ahead:
- Gradual Shift Towards Buyer-Friendly Market: The rise in inventory, coupled with the expected decline in mortgage rates, suggests a gradual movement towards a more buyer-friendly market. As inventory becomes more plentiful and financing costs potentially decrease, buyers may have more options and negotiating power.
- Opportunities for Sellers Who Bought Before the Pandemic: Despite the market shift, sellers who purchased their homes before the pandemic are in a prime position to capitalize. The significant increase in home values means they stand to make a substantial profit if they decide to sell.
- Regional Variations to Persist: The data highlights regional variations in inventory, seller activity, and time on market. These variations are likely to persist, with some regions experiencing a more balanced market sooner than others. Buyers and sellers in specific areas should stay informed about their local market trends.
- Overall Market Still Healthy: While a shift is underway, it’s important to remember that the housing market remains healthy overall. Demand is still relatively strong, and homes are still selling at a faster pace compared to pre-pandemic times.
Conclusion:
The housing market is a complex and dynamic system. While the data suggests a move towards a more balanced market, it’s important to acknowledge the ongoing influence of various factors like regional variations, economic conditions, and buyer-seller psychology. Staying informed about local market trends and seeking professional guidance can be beneficial for both buyers and sellers navigating this evolving landscape.
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