Housing Inventory Finally Crosses 2020 Levels. Time to Buy Before Prices Rise?

In June 2024, just “19% of consumers indicated that it’s a good time to buy a home,” according to Fannie Mae’s Home Purchase Sentiment Index®.

Homebuyers classically find themselves faced with one of two problems.

Either mortgage rates are too high to make a purchase affordable or there’s a shortage of homes for sale (“low inventory”). Or both, as we’re experiencing now.

Pandemic-era, rock-bottom mortgage rates demolished inventory, and that, of course, drove up prices.

But the housing market may be beginning to turn. The number of homes for sale just crosse 2020 levels, a line in the sand the market hasn’t reached in four years.

If we’re right, now might indeed be the perfect time to buy a home. Current high mortgage rates could be more of an opportunity than a curse. Here’s why.

Are Housing Market Conditions Turning?

We think there are grounds to see some seismic shifts in the housing market.

Mortgage Rates Heading Down?

To start with, mortgage rates look set to fall. When, in July 2024, Forbes reviewed forecasts from the major organizations that monitor the mortgage market, most thought we’d continue to see modest but consistent falls for the rest of this year and through 2025.

And the Federal Reserve is likely to help that process. True, it doesn’t directly determine mortgage rates. But it sure does heavily influence the bond market that does.

And the Fed says it’s expecting to cut general interest rates soon, although it’s yet to commit to a date.

Inventory Finally Exceeds 2020 Levels

Housing inventory is improving. Altos Research said several weeks ago, “It’s the end of May, and unsold inventory on the market is increasing across the country. Every state has more homes on the market now than a year ago. In many places we’re seeing new construction getting completed and adding to inventory, so it’s not just resale inventory growing.”

More recently, Calculated Risk confirmed that inventory has already exceeded that of 2020 for the same week of the year. That’s the first time inventory surpassed same-week levels in four years.

For the week ending July 19, Calculated Risk says, “Inventory was up 39.1% compared to the same week in 2023.”

That’s still over 30% below 2019 levels, but a huge step in the right direction for homebuyers.

Buyers Should Take Advantage of…Higher Rates?

Right now, many homeowners won’t sell because the would have to make a significantly higher payment if they moved.

Smaller mortgage rates will likely free those homeowners to finally sell their homes. That sounds like it could lead to even more inventory. But there’s a darker side to low mortgage rates – one that buyers may want to get ahead of.

A Surge In Demand From New and Repeat Buyers

Almost all those sellers will immediately become buyers. Very few want to stop being homeowners. They just want to move on from their existing homes because they want to upsize, downsize, relocate … for any one of many reasons.

And, secondly, think of all the sidelined homebuyers who have been patiently waiting because they feel locked out of homeownership by high rates. They, too, will likely pile into the market.

You can see that lower mortgage rates often lead to higher home prices. Lower rates generate more demand, which leads to higher prices, given restricted supply.

And the supply of homes remains depressingly low. Back in April, 2024, NPR estimated that there are between 4 million and 7 million too few homes in the United States to meet demand, which is pushing up housing costs for homeowners and renters alike.

The news provider asked Alex Horowitz, the director of Pew's Housing Policy Initiative, why. “So, restrictive zoning is the primary culprit,” he said. “It's made it hard to build homes in the areas where there are jobs. And so that has created an immense housing shortage. And each home is getting bid up, whether it's a rental or whether it's a home to buy.”

All this means the lower mortgage rates we’ve been waiting for are likely to prove a double-edged sword. Yes, they’ll make monthly payments more affordable in theory. But that may well be more than outweighed by higher home prices as demand surges.

Taking Advantage of Higher Rates

So, if you possibly can, buying now while rates are still uncomfortably high could be your best strategy. You’ll likely have a wider choice of homes in the current, slow market than in one where sellers receive multiple competing offers.

Of course, you may struggle to afford the monthly payments and “marrying the house and dating the rate” hasn’t worked out well for previous buyers.

But if rates do drop, you’ll be sitting on an asset that increases in value as other similar homes get bid up by buyers who waited.

When buying a home, it’s better to be a few years early than five minutes too late.

What You Need To Know Before Deciding Now Might Be The Perfect Time To Buy

Clearly our suggestion isn’t risk free. And you must be confident that you’ll be able to afford the new financial obligations homeownership brings for as long as necessary.

But, especially if your existing debts aren’t too high, it’s an idea that you might wish to explore further.

However, none of the potential benefits we’ve described can be guaranteed. Housing markets operate within the larger economy. And that’s inherently unpredictable.

Indeed, the late Harvard economist John Kenneth Galbraith once wrote, “The only function of economic forecasting is to make astrology look respectable.”

Of course, we think we’ve made a sound case for the idea that now might be a perfect time to buy a home. But only you can decide whether you want to pursue it.