Housing Inventory Rose This Summer, but Don't Get Too Excited

Though more homes hit the market over the summer, there's still a major shortage.

There's a reason home prices have been so inflated this year. Housing inventory plunged earlier in 2021, and while more homes did hit the market over the summer, there still aren't enough to go around.

In September, the supply of homes for sale reached its highest level all year. That month, there were 646,854 active listings, according to Realtor.com. This was an improvement over August, which saw 641,000 active listings.

But that's not entirely good news. Despite that uptick, housing inventory was still down 22.2% from September 2020. And until more homes hit the market, housing prices are likely to stay high.

Why fewer homes mean higher prices

Any time there's a shortage of a commodity, its price has the potential to rise due to increased demand. That's exactly what's been happening in the residential real estate market.

Because inventory has been so low, but buyers continue to want to purchase homes, they're willing to pay more for them. In fact, bidding wars have been a mainstay in the real estate market this year, and that's a situation known to drive up home prices.

Adding to the problem is the fact that mortgage rates have been sitting near historic lows since last summer. On the one hand, low rates are a good thing -- they make mortgages more affordable for borrowers. But since rates are so attractive, they're creating an even larger surge in demand at a time when inventory is down. The result is sky-high prices that are keeping many buyers out of the market.

Recently, the S&P CoreLogic Case-Shiller Index reported that July home prices were up 19.7% from the previous July (the index's most recent data). That represents a record high, and it also explains why so many people are unable to buy a home in this market.

When will housing inventory pick up?

It's likely that many sellers have held off on listing their homes due to uncertainty related to the economy and the pandemic. Once things improve in both regards, real estate inventory could pick up. But it's difficult to say when that might happen.

Also, we're heading into the cold weather months, and traditionally, that's a time when inventory drops (or at least doesn't pick up) on a national level. Usually, property listings peak during the spring and stay strong during the summer months. This year, there was no spring inventory boom, most likely due to uncertainty among sellers. And whether an influx of properties hits the market in the spring of 2022 is yet to be determined.

Those who wish to buy a home may be grappling with limited supply -- and higher prices -- for the foreseeable future. Potential buyers will need to evaluate their options and decide whether it's worth paying a premium to make the leap into homeownership. While low mortgage rates may drive some buyers to move forward with their plans to purchase a home, it's important to weigh those savings against today's much higher prices.