Housing News

More Homes, More Choices: How an Increase in Homes for Sale Is Benefiting Buyers

Things may be looking up for those thinking about buying a home, but are stressed out by the lack of properties for sale.

There were about 35.8% more homes for sale in August compared to the same month a year ago, according to Realtor.com data.

While there is still a national housing shortage, the increase in homes on the market may mean buyers have more homes to choose from, will face less heated bidding wars, and can potentially snag better deals.

Lower mortgage rates could lead to more homes going onto the market. Many homeowners have been reluctant to give up the low rates they locked in during the pandemic. As rates fall, they may be more willing to give up those rates and purchase new properties.

“As mortgage rates decrease, housing inventory is expected to continue rising in the coming months. Lower rates will enable more homeowners to list their properties, further boosting the supply of homes on the market," said Nadia Evangelou, senior economist at the National Association of Realtors.

"Additionally, lower mortgage rates make new construction more affordable, encouraging builders to build more homes,” she said.

When there are more homes for sale, it also keeps prices more in check as buyers may not have to offer quite as much to purchase a home.

However, Evangelou pointed out the market is still short about 4.7 million homes.

"These additional homes are highly needed in the current market," said Evangelou. “An increase in available homes gives buyers more choices and helps moderate price growth.”

What's driving the increase in the number of homes for sale?

The housing market is cyclical.

Spring and summer usually bring a surge in home sales since the warmer weather makes it more appealing to visit open houses, it’s easier to move, and many potential buyers also prefer to settle into a new home before the school year begins.

There are often fewer on the market in the winter months as the holidays and colder weather often make it a less opportune time to move.

This year may buck that trend if lower mortgage rates incentivize more sellers to put ‘For Sale’ signs in their yards.

As the number of homes for sale has increased, more sellers have cut their list prices to make a sale. There were 37.4% more homes with a price reduction in August than there were in the same month last year, according to Realtor.com. However, this was down a little, 2.8%, from July.

"Elevated mortgage rates have made homebuying more costly, pricing out many buyers and shrinking the buyer pool,” said Evangelou. “As a result, homes are staying on the market longer, adding to the number of unsold properties."

It's also important to keep in mind that the real estate market varies by location. Prices may remain high in some areas, particularly those that are highly desirable or have limited land for new development.

"Home inventory varies by the market, so your market may or may not be seeing an increase in inventory,” said Tiffany Davis, real estate agent at Norluxe Realty in the Atlanta area.

Builders are attempting to ramp up new home construction

Builders have struggled to ramp up new home construction in the aftermath of the Great Recession when many companies went out of business or laid off workers.

However, they have been up more homes recently. In August, builders began construction on 992,000 new single-family homes, a 15.8% increase from July, according to the most recent new construction report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Single-family housing starts were up 5.2% year-over-year in August.

"New listings have also been on the rise since the beginning of the year largely due to a surge in housing completions, following the boom in home construction during the pandemic, driven by low interest rates and heightened demand," said Evangelou.

As more homes go up for sale, competition generally falls 

The increase in housing inventory doesn't automatically mean that home prices will drop.

Over the past few years, home prices surged as demand far outpaced supply. But now that supply is catching up, there could be a slowdown in price growth in markets with more homes for sale.

There may also be less competition, which could take some of the pressure off prices.

During the peak of the housing market frenzy during the pandemic, buyers often found themselves in bidding wars. Multiple offers often drove up the price of a home well above its initial list price.

This was especially tough for first-time homebuyers who were already stretching their budgets.

When there are less folks competing for the same property, the offers may not go as high.

"This increase in housing inventory is a much-needed relief for the market,” said Evangelou.