Tight inventory is the primary reason the mortgage rate shock hasn't translated into a greater pullback in home prices

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If inventory begins to rise quickly as buyers pull back, and listings pile up, in theory, it signals a weakening market. Conversely, if inventory begins to fall quickly as homes sell faster, in theory, it signals a strengthening housing market.

By the time the U.S. housing market was in full-blown crash mode in 2008, active housing inventory for sale had climbed to 4 million. But we are nowhere close to that right now. Currently, that number is around 718,000 homes for sale.

The fact that there isn’t an excessive amount of existing inventory on the national market is the primary reason spiked mortgage rates and strained affordability haven't translated into more regional home price corrections.

Realtor.com has just published its inventory reading for December. Let's take a closer look at the national topline data.

In December 2023, there were 714,176 active listings* on Realtor.com. That’s +5% above December 2022 (679,650 active listings), and +61% above the height of the Pandemic Housing Boom in December 2021 (442,930 active listings) when many homes were selling so fast they weren’t even being registered as inventory.

But it’s still well below pre-pandemic levels: Active listings in December 2023 were -31% below December 2019 levels when there were 1,032,397 U.S. homes for sale.

December inventory/active listings total, by year, according to Realtor.com:

December 2017: 1,126,331

December 2018: 1,184,403

December 2019: 1,032,397

December 2020: 609,931

December 2021: 442,930

December 2022: 679,650

December 2023: 714,176

How inventory has shifted between November and December (month-over-month), by year, according to Realtor.com:

December 2017: -99,869

December 2018: -86,648

December 2019: -108,902

December 2020: -70,811

December 2021: -66,208 

December 2022: -68,694

December 2023: -40,670

Big picture: The smaller than normal seasonal inventory decrease in December suggests that the resale housing market underwent a more pronounced seasonal cooling than usual for the end of the year, influenced by strained affordability. However, national inventory levels still remain below pre-pandemic levels, suggesting more of a balancing housing market than a crashing one.

Unlike the first two charts which show U.S. active listings* (i.e. every home for sale in a given month), the third chart (right above) shows U.S. new listings** (i.e. homes coming on the market in a given month).

On the new listing front, there’s some good news for agents and loan officers who make their money on resale transactions: It appears that the lock-in effect is easing up. While there were still -31,928 fewer new listings in December 2023 (235,584 new listings) compared to December 2019 (267,512 new listings), that so-called listing deficit is smaller now than it was last year when December 2022 (220,792 new listings) had -46,720 fewer listings than in December 2019.

That suggests that some sellers, who, out of affordability concerns, put off selling to buy something new, might go ahead and make the move in 2024 as they come to terms with the fact that 3% and 4% mortgage rates aren’t coming back anytime soon.

* Active listings (i.e. what I often call “inventory”) = “The count of active listings within the specified geography during the specified month. The active listing count tracks the number of for sale properties on the market, excluding pending listings where a pending status is available. This is a snapshot measure of how many active listings can be expected on any given day of the specified month” according to Realtor.com.

** New listings = “The count of new listings added to the market within the specified geography. The new listing count represents a typical week’s worth of new listings in a given month. The new listing count can be multiplied by the number of weeks in a month to produce a monthly new listing count” according to Realtor.com.