These local housing markets are shifting—just look at inventory

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The most recent housing inventory readings are continuing to show a shift in some parts of the country. Most of the Midwest, Northeast, and West Coast housing markets remain tight, with active inventory well below pre-pandemic inventory levels. In contrast, many parts of the Gulf Coast, including Tampa and New Orleans, and the Mountain West have softened and inventory is back above pre-pandemic inventory levels.

Among the 200 largest metro area housing markets, these are the 10 where active inventory is the lowest, compared to pre-pandemic levels:

1. Bridgeport-Stamford, CT: -74.2% 
2. Hartford-East Hartford, CT: -74.2% 
3. Peoria, IL: -71.8%
4. Erie, PA: -71.3% 
5. Norwich-New London, CT: -68.4% 
6. Albany-Schenectady, NY: -65.5% 
7. Charleston, WV: -63.1% 
8. Binghamton, NY: -63.1% 
9. Huntington, WV-KY-OH: -62% 
10. New Haven-Milford, CT: -61.6%

And these are the 10 housing markets where active inventory is the highest, compared to pre-pandemic levels:

1. Huntsville, AL: +85.4% 
2. Killeen-Temple, TX: +75.0% 
3. Lubbock, TX: +71.5% 
4. Punta Gorda, FL: +67.7% 
5. Lakeland-Winter Haven, FL: +57.2% 
6. Colorado Springs, CO: +54.9%
7. Waco, TX: +46.4% 
8. Ocala, FL: +41.2%
9. Austin-Round Rock, TX: +40.1%
10. Memphis, TN-MS-AR: +39.2%

When assessing home price momentum, it's important to monitor active listings and months of supply. If active listings start to rapidly increase as homes remain on the market for longer periods, it may indicate potential future pricing weakness. Conversely, a rapid decline in active listings could suggest a market that is heating up.

Generally speaking, housing markets where inventory (i.e. active listings) has returned to pre-pandemic levels have experienced softer home price growth (in some cases outright declines) over the past two years. While housing markets where inventory remains far below pre-pandemic levels have typically experienced stronger home price growth over the past two years.

What's causing these big differences in the regional housing markets?

During the pandemic housing boom, housing demand surged rapidly amid ultra-low interest rates, stimulus, and the remote work boom. Federal Reserve researchers estimate “new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.” Unlike housing demand, housing supply isn’t as elastic and can't quickly ramp up. As a result, the heightened demand drained the market of active inventory and overheated prices, with U.S. home prices in September 2024 reaching a staggering 50.9% above March 2020 levels.

This home price overheating, combined with the subsequent mortgage rate shock in 2022, has pushed housing affordability to levels that suppress housing demand and has made the market vulnerable to price corrections.

However, on a regional level, local housing dynamics have varied, with some markets remaining resilient despite these vulnerabilities, while others have experienced greater softening or even mild home price corrections.

In some parts of the Sun Belt and Mountain West, home prices grew even more dramatically during the pandemic housing boom, exceeding local incomes. As pandemic-driven migration slowed, these pandemic boomtowns experienced greater softening.

In some Southwest and Southeast markets, such as Austin, where homebuilding activity is higher, resale markets have experienced additional cooling. This is because builders, when necessary, have made affordability adjustments—such as mortgage rate buydowns or price cuts—to keep selling inventory. These adjustments have attracted some homebuyers who might otherwise have purchased in the resale or existing home market, making it more challenging to sell existing homes.

Unlike many Sun Belt housing markets, most major Northeast and Midwest markets did not experience the same pandemic boom or high levels of homebuilding. With existing homes as the primary option for buyers in these regions and more stable housing demand, their markets have remained tight despite affordability pressures.