The number of homes for sale on the market is finally starting to return to normal, helping to ease the nation's painful housing shortage.
A new report from Realtor.com shows that the total number of homes for sale, including homes that were under contract but not yet sold, rose by 6.2% in May compared with the same time a year ago.
In fact, there were 35.2% more homes actively for sale on a typical day in May than there were one year ago, marking the seventh straight month of annual inventory growth, according to the report.
There are other signs of improvement on the inventory front. For the first five months of the year, housing inventory was at the highest level since 2020. However, it remains extremely low when compared with the typical pre-pandemic level, with supply still down a stunning 34.2% from the levels seen from 2017 to 2019.
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"We expect a still-sizable gap between 2024 housing inventory and the pre-pandemic housing market to persist as it closes only gradually," said the report, which was authored by economist Danielle Hale and economic researcher Sabrina Speianu.
The lack of available homes for sale is keeping prices uncomfortably high, even though mortgage rates are hovering near the highest level in two decades. Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.
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While the median listing price is mostly unchanged from the same time last year, higher mortgage rates compared with May 2023 have increased the monthly cost of financing a typical home by about $158 per month, or 7.1%.
That means in order to purchase a median-priced home, income needs to increase by $6,400 to $119,700.
"While the housing market is still in the seller’s territory, it is expected to shift in a buyer-friendly direction as mortgage rates resume their decline over the next year and the number of homes for sale increases. Already, the housing market has taken steps in this direction," Hale and Speianu wrote.
Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic, with investors predicting just one or two rate reductions this year.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan rose slightly to 7.04%. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.
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Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.
