Will New Spike in Supply Push Home Prices Down?

The housing market, long constrained by a tight inventory, is seeing a shift as new listings climb at rates not seen in three years.

But it might not be enough to bring home prices down by spring.

Fresh listings surged 12.8 percent year-over-year at the beginning of February, according to a Redfin report, marking an uptick in housing availability. While the flood of new options can potentially rejuvenate a market that has been in need of vitality, it comes at a time when prices are still increasing.

The increase in inventory also arrives as mortgage rates, though slightly receding from their peak last fall, remain elevated, hovering around 6.98 percent, according to data from Mortgage News Daily. That landscape has potential homebuyers weighing their options carefully, Redfin chief economist Daryl Fairweather told Newsweek.

“New listings are increasing because homeowners are getting tired of waiting to move,” Fairweather told Newsweek by email. “Many homeowners have locked in record low mortgage rates from the pandemic, but retirements, marriages, divorces and deaths are the kind of life events that will motivate a homeowner to give up their rate.”

However, more homes available on the market does not automatically translate to falling home prices.

While more options might suggest that real estate is entering a buyer’s market, the current scenario is nuanced, according to Redfin. The median list price has seen modest growth, up about 5 percent from the same time last year to $402,045, indicating that while supply is increasing, demand remains resilient.

“While new listings have been ticking up for the past several weeks, home prices are also up about [5 percent] from a year ago,” Fairweather said. “Further exacerbating affordability for homebuyers is the fact that mortgage rates are climbing again after a hotter-than-expected January jobs report and the Fed’s confirmation that they’re unlikely to cut interest rates in the next two months.”

The increase in listings, while significant, comes from a historically low base, Redfin said. The housing market has been marked by scarcity of inventory for years, a trend that intensified during the pandemic as demand for homes surged.

That scarcity contributed to the rapid acceleration of home prices over the past few years, experts said. And despite the increase in supply, overall inventory levels remain well below pre-pandemic norms.

According to Redfin’s data, while the surge in new listings is encouraging, the total number of homes for sale is still about 40 percent lower compared to the pre-COVID years of 2017 to 2019, indicating that while there are more options available than in recent months, the market is still far from having a surplus of homes.

“While increasing new listings are welcome news, we’re coming off a year of record-low inventory, so the housing market is still challenging for buyers,” Fairweather said.