More housing stock means the market may be shifting in favor of buyers

While sellers have long held sway in the housing market, the last year has been especially weird. Demand has remained strong, and homeowners who locked in lower mortgage rates back in 2021 or earlier are reluctant to sell now that rates are hovering around 7%. The result? Both home prices and mortgage rates are high, an unusual combination in the housing market.

Yet there are signs that could soon change. New home listings — the total number of homes listed for sale during a given time — hit a 17-month high in February, according to Redfin. And that, said Bloomberg opinion writer Conor Sen, could lead to some price flattening in the housing market.

“We’re seeing inventory really grow off the very low levels of last year,” Sen said. “And in a market that’s very undersupplied, that’s becoming a meaningful amount of inventory.”

“Marketplace” host Amy Scott spoke with Sen about the return of sellers to the housing market. The following is a transcript of their conversation, lightly edited for clarity.

Amy Scott: We’ve been in a seller’s market since what, 2015? Why have sellers had the upper hand for so long?

Conor Sen: We really underbuilt housing for a decade heading into the pandemic. And then during the pandemic, you had a couple factors that really boosted housing demand relative to supply. One is that mortgage rates fell so low, and so you kind of supercharged housing demand for a couple years, and it took builders a long time to catch up to that and respond. And so we entered 2022 with the rise in mortgage rates, where housing demand is very strong, we had underbuilt for a decade, and mortgage rates are 3%.

Scott: And even as mortgage rates have gone up, sellers have stayed in the driver’s seat. Why is that?

Sen: From about August of 2022 until August of last year, sellers basically decided not to transact in the market. This was the mortgage rate lock-in effect where people said, “I have a 3% mortgage rate. I know mortgage rates in the market are 6% or 7% now, so I’m just not going to sell.” And so for people who had to buy, that really put them in a tough spot just because there was so little to buy, that prices stayed strong even though affordability was terrible.

Scott: But you write that that might finally be changing. What signs are you seeing that the market might be shifting?

Sen: Since the spring selling season started this year — and in much of the country, particularly the South, that is right around the Superbowl in mid-February — we’re seeing inventory really grow off the very low levels of last year. So we’re only back to the new listings level of 2022, but with how bad 2023 was, that’s like a 20% increase in new listings. And in a market that’s very undersupplied, that’s becoming a meaningful amount of inventory, particularly in parts of the country like Texas and Florida.

Scott: I want to get to why it’s happening in certain markets more than others, but why are sellers finally listing their houses? Can they just not afford to wait any longer?

Sen: I think that’s it. So as much as people might want to hold on to their low mortgage rates, life events do happen, whether that’s marriages, babies, schools, deaths, divorces. And you also have had now two years since mortgage rates started going up. And so you do have about 10 million homeowners who have bought in this new world of higher mortgage rates, and they’re not locked into low mortgage rates the way that people who bought in 2020 or 2021 are.

Scott: So why Florida more than, say, the Midwest?

Sen: So southwest Florida is unique in that it had a big impact from Hurricane Ian in the fall of 2022. And so you have some homeowners who have damaged homes, and they decide they’d rather sell them. And then also Florida is unique in that it has this fairly well documented at this point home insurance issue, where home insurance rates have really spiked. And so even if you have a low mortgage rate, if your homeowners’ insurance is up 50%, 100%, 200%, that’s still an impact on your cost of ownership. And people decide, “I’d rather sell than pay these rates.”

Scott: We started this conversation talking about the underbuilding of housing that kind of led to this in the first place, but homebuilders have also picked up the pace of construction. Is that making a difference too?

Sen: It is, and we’re probably going to see the highest rate of new construction this year for single-family homes since probably the 2008 crisis. And so maybe it’s only 1 million, 1.2 million homes per year, but it does have an impact. And building is the kind of thing that doesn’t fix the market overnight, but it’s kind of a slow and steady impact in terms of correcting the underbuilding of the 2010s.

Scott: For sellers, obviously, they want to get the highest price they can. But for buyers, this seems like good news, people who’ve been shut out of the market and just waiting for more options?

Sen: Exactly. So I think what’s happening is that probably the monthly payment that buyers are going to end up with will be more or less the same as what they would have thought in December, but the difference is that they thought they might be paying a 6.25%, 6.5% mortgage rate. Instead, it’s more like 7%, and so the difference is probably going to happen on the pricing side. So maybe you say, “Look, I was willing to pay $500,000, but with rates here, I can only pay $480,000.” And some seller will accept that. It looked like we might have 5% home price growth this year, and at the moment, it’s looking more like flat, and some markets will probably be down again.

Scott: What does that mean for the broader economy?

Sen: So it’s interesting, because the way that the housing market impacts the economy, one is on the building side, and we’re still going to see as much building as we would have gotten otherwise. And then two is on the resale side. It’s that realtors are getting their commissions, movers, furniture, all the stuff that goes into transacting a home. And so even if prices are not as strong as people might have thought a few months ago, if you do have more transactions, that’s a good thing for the economy. So in a weird way, a more sluggish pricing environment is going to be a better economic impact just because we’re gonna get more transactions.