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Facing Fall: Is Inventory Improving?


As summer starts winding down, the hot housing market is showing small signs of a cool-down. Record sales and price appreciation are starting to calm just a bit with more inventory coming on the market.

A More Moderate Pace

With inventory improving, existing home sales rose slightly for the second month in a row (+ 2%) with no declines in any region. Sales growth year-over-year has slowed considerably compared to the last three months, up just 1.5%.

NAR Total Existing Home Sales Percent Change Year-Over-Year

“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” noted NAR chief economist Lawrence Yun. “That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.”

Pending home sales dipped slightly again in July (-1.8%) for two consecutive months of decline with the West showing the only increase in signings. All four regions decreased year over year.

The median home price also dipped in July to $359,900 but was still up 17.8% versus 2020 for 113 straight months of year-over-year gains. 

Investors continue to be a competitive factor for homebuyers—purchasing 15% of homes in July. All-cash purchases represented 23% of transactions, even with June up 16% from July 2020. Rental properties are heating up as some buyers are priced out of the purchase market—pushing up rental rates.

Inventory Improves

Housing inventory increased 7.3% in July to 1.32 million units with unsold inventory up to a 2.6-month supply. Properties continue to remain on the market for 17 days with 89% sold in less than a month.

“July…saw real-estate markets welcome a larger influx of new listings, as homeowners across the country decided to move on with pandemic-delayed plans to sell,” said Realtor.com economist George Ratiu. “The inventory boost has already taken the sting out of the steep price gains seen during the first six months of this year, indicating that the overheated appreciation pace is behind us.”

All of that said, builders are still struggling to keep up. Housing starts fell 7% versus June for an adjusted annual rate of 1,534,000. 

“Solid housing demand and low inventory will incentivize homebuilders and support housing starts, but higher input and labor costs will temper activity,” according to leading U.S. economist Oren Klachkin.

Lumber costs may have come down, but builders are still facing price spikes and shortages in other materials and labor. 

“It’s really been just about every building product you can think of,” commented Dave Flitman, CEO of the country’s largest manufacturer and supplier of building materials. 

“We sell a lot of windows and doors, and those have been in tight supply. We’ve heard stories from builders about not being able to close on homes because they couldn’t get appliances,” he continued.

Workers have also been in high demand as the pandemic led to a mass exodus. According to housing analyst Ted Wilson, “You couldn’t just flip the switch and build more houses when demand rose.”

Rates Steady

July saw mortgage rates fall below 3%. A 30-year fixed mortgage was just under 3% at the beginning of the month and 2.8% at the end of the month. Mortgage applications ended the month down 1.7%. 

“Purchase application volume decreased again, reflecting the ongoing lack of inventory that continues to drive rapid home-price appreciation across the country,” noted Mortgage Bankers Association chief economist Mike Fratantoni.

A Look Ahead

Experts expect a more moderate fall selling season with continued improvements in inventory. Demand will still outpace supply, but the market will not be as frenetic.

“The shift in the housing market will make shopping for a home a lot more tolerable than it has been, because consumers will actually have time to properly think through their decision and won’t be in as fierce of bidding wars,” noted Ali Wolf, chief economist of building consultancy Zonda.

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