Inventory growth making housing more affordable

One positive housing story that really isn’t getting any love is the inventory growth we have seen since the lows of 2022. Why is that positive? Well, more inventory means more choices, a better buyer’s market, and less price growth — all things the housing market needs to get healthy again. I believe this is one variable that has helped housing demand hold up better this year even with mortgage rates rising due to the conflict with Iran. You can see this in our weekly pending home sales data below, which looks out 30-60 days.

Housing inventory is growing

Now, I will admit I am very biased on this topic as someone who called for higher mortgage rates early in 2021. What we needed back then was for higher rates to cool down price growth and get inventory rising. Of course, that didn’t happen in 2021, and rates only started to rise after March in 2022, after home prices rose nearly 30% in 2020 and 2021 combined.

As we can see below, housing inventory, while not back to the normal levels for NAR data (2-2.5 million) is up from the low of 860,000 to 1,470,000 today, with over 4 months of supply.

The reason this is important is that, even though existing home sales didn’t go anywhere and mortgage rates rose from 6% to 8% in 2023, home prices still rose by nearly 6% that year. That is not a healthy housing market. However, we can’t replicate that home-price growth in 2026 with rates near 6% because inventory is up. This is a positive on helping improve affordability.

Another plus: we are getting more sellers in 2025 and 2026 than in 2023 and 2024, as our new listings data is trying to return to normal levels, which means between 80,000 and 100,000 new listings per week during the seasonal peak period. Most home sellers are also homebuyers, and no, these people were never part of the mortgage-rate-lockdown thesis or they wouldn’t be listing their homes. We hit 80,000 plus new listings earlier this year than last year and I am hoping for some growth in the next few weeks before the seasonal decline.

Supply is a function of housing demand in this regard. Meaning most of these sellers who come to the market are looking to sell and buy another home.

Wage growth faster than home-price growth

Wage growth has been running higher than home-price growth for some time, and the longer that persists, the better affordability gets each year. Today, the NAR existing-home median sales price index rose 0.9% year over year, while wages are rising 3.6%.

Even in our weekly Housing Market Tracker, housing inventory data is on the verge of going negative year over year, as the chart below shows.

Since inventory data is no longer at the savagely unhealthy levels of 2022 but at multiyear highs, the positive theme I described above remains intact.

Conclusion

I know everyone, myself included, focuses on mortgage rates, as the data clearly improves when rates are near 6% rather than over 7%. However, in the bigger picture, the housing inventory growth we have seen since the lows of 2022 has been a huge benefit for housing for years to come because prices rising as much as they did during Covid kills future demand. However, wages growing faster than home prices is a much healthier housing market, and that is what we have now.