The supply of single-family homes jumped 8.2% week-over-week as higher mortgage rates cool demand. Here's what that means for homebuyers.
Higher mortgage rates are proving to be a double-edged sword by making homebuying more expensive and steering the market back toward much-needed balance.
Single-family home inventory increased by 26,000 homes week-over-week for a total of 344,000 unsold homes according to data from Altos Research. That’s by far the biggest inventory increase of 2022 and puts this year’s single-family home supply ahead of last year’s – a step in the right direction toward balanced supply and demand.
Inventory typically increases in May as families list their homes in time to sell and move when school is out for the summer. But Altos Research CEO Mike Simonsen wrote that the 8.2% week-over-week increase may be the biggest on record, percentage-wise.
“At an absolute level it is not unprecedented for inventory to grow by 25,000 in a week,” Simonsen wrote in a weekly data report. “But since we’re coming off the record lows, as a percentage, that may be the biggest jump we’ve seen. At 344,000 homes we now have 6% more than last year. Climbing very quickly.”
Inventory up, home sales down
In addition to seasonality, declining home sales cleared a path for inventory to make substantial gains after dropping to record lows earlier in the year.
According to the National Association of Realtors, existing-home sales fell 2.4% month-over-month in April, and were down 5.9% from last year.
"Higher home prices and sharply higher mortgage rates have reduced buyer activity," said Lawrence Yun, NAR's chief economist. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years."
New home sales took an even harder hit, falling 16.6% from March to April and 26.9% year-over-year, according to Realtor.com. With existing-home inventory so low, new homes have become a larger part of the market, making up a third of supply at one point. However, new construction is substantially more expensive – especially as builders face shortages of lots, labor, and materials – and is affordable for a shrinking pool of high-end buyers.
The home sales data from NAR and Realtor.com lags behind the inventory data from Altos, but given this week’s jump in inventory, it’s reasonable to assume that sales continued to decline in May.
What does this mean for home prices?
Rising inventory is an early indicator of a cooling market, but homebuyers shouldn’t hold their breath for home prices to fall.
Redfin reported that despite home sales being down, home prices increased 15.5% year-over-year in April. And forecasts from seven leading housing authorities call for an average 6.1% annual price growth in the first quarter of 2023 – which is slower than today’s, but higher than the typical 3-5%.
While prices aren’t expected to fall anytime soon, rising inventory is still a favorable shift for homebuyers. If this trend continues, buyers will face less competition over more homes, have more time to make decisions, and may even find themselves with bargaining power at the closing table.