This metric gives us hints at where home prices might fall—or just keep on rising

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A rule of thumb in residential real estate is that anything below a 6-month supply of inventory is considered a "seller's market." However, in Austin, where home prices began to decline last summer when the months of inventory stood at just 2.1 months, that rule hasn't applied effectively. In fact, despite Austin's months of inventory only reaching 4.0 as of September, home prices have already dropped by 17% from their peak, according to the Zillow Home Value Index.

But this doesn't diminish the importance of inventory. In fact, inventory remains one of the most critical metrics during this market cycle; it's just that we might need to look at it a different way given how strained affordability is today.

This week, ResiClub reached out to the housing data pros at Parcl Labs, the fastest-growing player in the residential real estate data space. We took a close look at their calculation showing the percentage of total single-family housing stock listed for sale in each of the nation’s major housing markets (see map below).

According to Parcl Labs, regional housing markets like Austin and New Orleans have a total of 1.14% and 1.09% of their total single-family housing stock listed for sale. San Antonio has 0.88% of its total single-family housing stock for sale.

Those same places with the highest percentage of local single-family housing stock for sale are also the very places where home prices are still falling.

Between July 2023 and September 2023, local home prices as measured by the Zillow Home Value Index fell in Austin (-2.37%), New Orleans (-2.79%), and San Antonio (-1.26%).

Meanwhile, home prices continued to rise during that same 2-month window in inventory-constrained markets in the Northeast, Midwest, and along the West Coast.

One crucial point to note is that inventory in housing markets like Austin isn't increasing because there is a surge of resale listings coming onto the market. Rather, inventory in Austin has piled up due to a sharp demand shock, with local buyers pulling back significantly as the zoomtown/WFH frenzy saw local prices simply go up too high too quickly. This reduction in local demand is compounded by competition from the new-home market, where builders have reduced prices, placing the local existing market at a disadvantage.

Generally speaking, housing markets where inventory has returned to pre-pandemic levels have experienced weaker home price growth over the past year. Conversely, housing markets where inventory remains far below pre-pandemic levels have, generally speaking, experienced stronger home price growth over the past year.

As of November 2023, most of the weakness can be found in markets in Texas and Louisiana.

On Saturday, the Lance Lambert House Price Tracker went live. The beta version has metro-level analysis; however, county and ZIP code data will be available soon. This offering is for just ResiClub Pro members.