Are we on the verge of seeing home prices drop? Finally, interest rates have gone down from the peak of 8%. Inflation has gone down. And buyers do want to move and buy homes. And if you’re looking to move, you want to make sure that you have the most important and relative and updated true data on the housing market. In this video, I’m going to talk about how the housing inventory will impact the home prices. 

Is the inventory going up? Is it going to go down, and how will it impact the home prices? So if you’re thinking about moving, it will be an advantage to you if there is more inventory. We will also take a look at the impact of the housing inventory, the shortage of homes, the lower interest rate, the lower inflation rate, and see if we can predict what’s going to happen in 2024. 

We have all heard the story over and over again. There’s a shortage of inventory for that. Since 2017, we have had that issue. The buyer demand was very high during the COVID times. A lot of the sellers did not move because they didn’t want anybody to come in the homes and the builders could not keep up with it. 

So let’s look at why there is a shortage of inventory. Well, I just gave you a few, but what is going to happen with this inventory? This inventory is the lowest in the history that I’ve been in business around for 25 years. It has never been this low of an inventory. And the lower inventory has impacted the home prices. 

They have stayed high since 2017. They’ve gone up and up and up significantly. So let’s see what’s going to happen. Realtor.com did a survey and they’re indicating that the inventory went up year over year in October. So let’s look at the impact it’ll have on our immediate housing market coming up in 2024. 

If you’re thinking of buying or selling or making a move soon, one of the things I wanted to point out because of the low inventory, the big question is why is inventory so low? Yes, a lot of people remodeled. A lot of people work from home. A lot of people decided not to move. But one of the biggest reason inventory has been low for the last two years, and it may be still low for the next one or two years. We’ll see. What happens is, because of what we call the rate lock sellers, as you know, during 2021, 2022, interest rates went to historic lows. They were as low as 2.2% on a 15 year loan, 2.5% on a 30 year fixed loan. 

I’ve sold many homes at 2.5% and 3%. So what’s happening now is the sellers who would move normally, let’s say you bought a house for $700,000, and in the last five years, or three or four years, the inventory, the appreciation, has gone up 20, 30%. A lot of the sellers would sell, take their equity, the growth in equity, and buy a bigger home, or buy to a nicer home or a different location. But what’s happening is because if I’m a seller and I bought a house three years ago or two years ago at 3%, and now I want to move, but I can’t move because I’m thinking I have 3% interest rate locked for 30 years or even 2.5%. I bought the house at $700,000. Maybe I can sell for a million dollars. But for me to buy something, first of all, I have to pay 7%, seven and a half percent. That means double my interest rate. So my payment is going to almost double. At the same time, because of the low inventory, the prices have creeped up. 

So if I was to buy a 1.2 home, selling my $700,000 home, which is now what, 700? As an example, the 1.2 home that I would want to buy because it has a bigger square footage, bigger yard, it has a pool and a view, that house is going to cost me 1.5 because as my house price went up from 700 to a million, the 1.2, my target home is now 1.5. So two things are happening. If I buy a house, move up, assuming you’re moving up, my interest rate goes up from 3% to 7%, and my payment almost doubles and my property tax almost doubles. 

So these are rate lock sellers. They’re not going anywhere, at least not yet. And that’s part of the cause of the inventory shortage. But let’s look at the rise in inventory as of October, according to National association of Realtors and Realtor.com. Let’s look at this chart. This is a chart of active listings going back to 2017 and comparing to 2023 in October. This chart is from realtor.com. And in 2017, the number of homes for sale in October was 1.286 million homes for sale. In 2018, that went up to 1.3 million homes for sale. And in 2019, there was a drop of 1.2. And look at 2023 from 2019 jumping to four years ahead, it has dropped to almost 740,000 homes for sale, from a peak of 1.3 in 2018 to almost half, almost half the inventory. 

So yes, you must have heard that homes are slowing down. Well, duh. Of course it’s slowing down. When there’s no homes on the market. Number of home sales are down. So yes, number of home sales are down in many regions, but not because people are not buying, even with high interest rate, even with high home prices. But there’s no homes for sale. I have four buyers right now. I have not shown any of them any homes in the last two months because there’s nothing to show. 

So inventory has gone down from October to October, comparing every year. And seems like according to statistics, according to demand, according to the rate lock sellers, according to the builders not keeping up with the home, this inventory may stay low. Let’s see what happens. I’ll visit this video again in about six months and see what happens. 

Please keep in mind that real estate is hyper local. So what happens in one city, or let’s say a metro city like Los Angeles, New York or Dallas, Seattle, may not happen in your city. So overall inventory has gone up 5% and we’ll talk about that shortly. Inventory has gone down, but in your local market it may be higher. So local market may be different. Consult your real estate agent to give you exact facts. If you’re looking for a realtor in your neighborhood I can refer you, just contact me link below. 

As Lance Lambert, founder of Razi Club, says, housing market inventory is so far below pre pandemic levels that October’s big jump is still just a drop in the bucket. What does this mean? It means that inventory may have gone up or may go up shortly, and we’ll visit that very shortly in the next slide. But that may not be a very impactful increase. 

I mentioned to earlier that inventory has gone up 5.1%. Comparing October to October from last year, let’s look at this chart which shows the change in inventory Month over month in October 2023. As you can see, the national average is about 5.1%, which is quite a big jump. But if you look at relatively, it’s really not a big jump. I mean, when the inventory is low and it goes up 5% is not much, but the inventory is very, very high and it goes up 5%, that’s a significant amount. So in my opinion, 5% is a drop in the bucket. I would say it will have no impact on the inventory or the prices. So if you look at some of the states, let’s look at some of the states where inventories, 5% is the average, but in some states it’s even higher. 

California is 5.1% which is the national average. If you look at Nebraska, inventory is up 7.5%. Oklahoma, inventory is up 5.5%. And if you look at Massachusetts and Rhode island, they’re up 8.2% and 10.9%. So which is quite a jump. But let’s look at some states where inventory is still very low or it has actually gone down. If you look at South Dakota, home inventory has gone down by 15%. Montana, it has gone down by 1.8%. Colorado, down by 1.6%. New Mexico, down by 2.1%. And if you look at Arizona, their inventory has gone up 14%, which is very significant. So you may wonder, well, inventory is up. 

Finally, are the home prices going to drop? Well, not so fast. Inventory is up 5%, but it’s not a significant impact where it’ll make a significant difference in your home prices. Like I said earlier, if you want your local data, what’s happening in your local market as far as inventory, home prices, home sales, how long is it taking to sell? Are you getting biding wars in your neighborhood? Contact me and I’ll refer you to an agent who knows something about these stats and who’s well versed, well experienced in your neighborhood. I’ll be glad to refer you to them.

As far as the forecast for 2024, inventory has gone up 5%, but it’s a drop in the bucket. Rates were at 8%. They have come down to almost 7% a few days ago. Inflation has come down significantly from 8%. Rents are still very high. So a lot of the renters who are paying high rents want to buy. 

There’s a lot of people who’ve been stuck in the homes they want to move, but they did not move for the last two years. So there are people who want to move up and people who want to move down. So there’s a big demand for home sales with all this activity, with low inventory, lower interest rate buyer demand, rents who want to move from their high rental areas, there’s going to be a lot of buyers, which means one thing, prices are not going to drop. 

I did a video on the impact of higher foreclosure rates that has been around for the last two or three months. Watch that video now and see if it impacts your home buying or selling decision.