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Heading into 2024, ResiClub noted that the key metric to watch for home price momentum was monthly active inventory levels compared to the same month in pre-pandemic 2019. Today’s analysis shows that this metric is still very much the key metric to watch for next year as well.
Generally speaking, housing markets where active inventory has returned to pre-pandemic 2019 levels have seen home price growth soften or even decline outright from their 2022 peak. Conversely, housing markets where active inventory remains far below pre-pandemic levels have generally seen home prices remain more resilient since 2022.
Among the nation's 250 largest metro areas, 57 markets had active housing inventory in September 2024 that was higher than in September 2019 (see interactive chart above). Of those 57 markets, 41 have seen home prices fall at least somewhat since their 2022 peak.
The interactive chart below is the same as the one above, but the color scheme has been changed to indicate which markets have active inventory below or above pre-pandemic levels.
Why is active inventory such a great metric for following home prices? Think of active inventory and months of supply as the local housing market’s equilibrium of supply and demand.
If housing demand surges and homes start selling quickly, local active inventory may begin to fall. If that demand surge goes beyond what's seasonally typical, it may suggest a heating-up housing market. That’s exactly what we saw during the pandemic housing boom from summer 2020 to spring 2022.
Conversely, if housing demand pulls back and homes are no longer selling as quickly, local active inventory may begin to rise. That suggests a cooling housing market, and if it cools enough, home prices could fall. We’ve seen this in some housing markets since the pandemic housing boom fizzled out in 2022.
If you look at the map above (inventory now compared to pre-pandemic 2019) and then at the map below (home prices since their 2022 peak), you’ll see the relationship between the two metrics. For instance, in the Northeast, where inventory has generally fallen, prices are up.
A rule of thumb in real estate is that anything below a 6-month supply of housing inventory is considered a "seller's market," while anything above a 6-month supply is a "buyer's market." However, that hasn’t always held true this cycle. In many housing markets—including Austin’s metro area, where house prices began to decline in June 2022 with only 2.1 months of inventory—that rule hasn't applied.
In fact, despite Austin's months of housing inventory only reaching a high of 4.8 as of August 2024, house prices have already dropped by 19.8% from their 2022 peak in Austin. A better measure of this incoming pricing weakness was the abrupt active inventory jump that occurred in Austin in spring and summer 2022 (going from 0.4 months of inventory in February 2022 to 2.1 in June 2022), which quickly pushed active listings above pre-pandemic levels.
That's why ResiClub conducts a monthly metro and county-level inventory analysis in addition to a monthly metro and county-level home price analysis.
Over time, this metric (monthly active inventory levels compared to the same month in pre-pandemic 2019) may prove less effective for determining home price momentum; however, heading into 2025, we expect it to retain its effectiveness.