The United States is beginning to witness some relief in its historically tight housing market as a surge in new listings brings fresh inventory to meet pandemic-induced demand. Active listings for homes rose by 19% in June, marking the fastest annual growth rate in five years, according to data from Realtor.com. Additionally, new listings for the month surpassed pre-pandemic levels, indicating a positive shift.
Although this is a positive development, it’s important to note that the overall inventory is still at roughly half the pre-Covid levels. Nevertheless, the boost in supply is most notable in regions that previously experienced surges in demand. For example, Austin saw an impressive 145% increase in stock from a year ago, while Phoenix and Raleigh saw similar trends with stock levels up by 113% and nearly 112%, respectively. Conversely, some markets are still experiencing declining inventory, with Miami down by 16%, Chicago down by 13%, and Virginia Beach down by 14%.
Experts believe that the trend of increasing supply may continue through July as sellers respond to heightened prices and the difficulty that buyers face in finding homes within their budgets. The impact of this increased supply is yet to be seen in property prices, however, as the median listing price reached another record high of $450,000 in June, according to Realtor.com. While annual gains have moderated somewhat, they are still up by nearly 17%.
The primary reason for the unrelenting price growth is the increasing share of larger, more expensive homes in the market. This shift in housing dynamics can have serious implications for affordability. The share of income needed to purchase a median-priced home in the second quarter of 2022 reached 31.5% of the average U.S. wage, the highest level since 2007 and up from 24% the previous year. This increase marks the most significant jump in over two decades. Notably, lenders often consider a 28% debt-to-income ratio as the maximum ceiling for approving a mortgage, which is why an increasing number of potential homebuyers no longer qualify for loans.
As a result, housing affordability decreased in 97% of the country during the second quarter, according to ATTOM, a property data provider. This is up from 69% during the same period the previous year and represents the highest reading since the Great Recession’s housing crash.
High prices and affordability issues have been exacerbated by the doubling of interest rates, making monthly mortgage payments between 40% and 50% higher than they were a year ago. This shift is putting homeownership further out of reach for many potential buyers.
However, there are signs that buyers are adapting to the new conditions. In June, new and pending home sales increased, possibly indicating that some people are deciding that now is the right time to enter the market. As expectations of higher mortgage rates loom, buyers may be feeling more motivated to make a purchase, especially with a growing number of options to choose from.
While the surge in housing inventory is a promising development, it remains to be seen how this will impact the ongoing affordability crisis in the U.S. market. For now, it offers a glimmer of hope for buyers and provides a positive shift in the nation’s real estate landscape.
As the housing market continues to evolve, analysts and industry stakeholders will closely monitor how this changing dynamic will affect potential buyers and the overall affordability of housing across the country.