Housing inventory is on its way back to pre-pandemic levels, but purchase demand is still very low and significant movement in mortgage rates could change everything, a new report from the Intercontinental Exchange (ICE) revealed Monday.
The data and technology provider’s June 2024 ICE Mortgage Monitor Report showed inventory was up 30% year over year in April, reaching its highest seasonally adjusted level since mid-2020. Inventory growth was stronger than at this time last year in 90% of U.S. markets, returning to pre-pandemic levels in 14 of the largest markets. Among those, 13 are in Florida and Texas.
However, inventory deficits have worsened in many northeastern and midwestern markets, putting continued upward pressure on home prices in those areas.
“Inventory seems to be the primary differentiator when it comes to the bifurcation we're seeing in housing market temperatures across the country," ICE Vice President of Enterprise Research Strategy Andy Walden said in the report. "Generally speaking, the Northeast and Midwest still face deep deficits in available homes for sale, helping prices continue to run hot. On the other end of the spectrum, prices are softening in Florida and Texas as for-sale inventories rise in both states. Then you've got California, where affordability and inventory are in a steel cage match to determine dominance. In April, each of the state's top 10 markets either registered below-average growth or clocked adjusted price declines.”
The latest ICE Home Price Index data shows annual home price gains continued to cool in April, marking the second consecutive month of pullbacks. Gains of 6.1% year over year in February slowed to a revised 5.7% in March before easing to 5.1% as of April. As Walden explains, the cooling is apparent from both seasonally adjusted and unadjusted perspectives.
"With 30-year rates easing and affordability improving entering the year, unadjusted monthly price gains had been running above their same-month 25-year average since the start of 2024,” he said. “However, softening price growth in April has dropped us below that long-run average. We’ve seen the rate of appreciation slow on an adjusted level as well, with April’s +0.28% increase in home prices a marked downshift from +0.45% in March. That’s equivalent to a +3.4% seasonally adjusted annual rate, suggesting annual growth will likely continue to slow in coming months.”
Of the seven major U.S. markets among the top 50 by population where inventory has returned to – or exceeded – pre-pandemic levels, five saw seasonally adjusted prices edge lower in April. Meanwhile, Houston, Jacksonville, Nashville, and Salt Lake City – all nearing pre-pandemic inventory levels – also saw adjusted prices ease in April.
If adjusted monthly gains continue at their current pace of 0.28% per month, the annual growth rate metric would fall below 4.25% in June, with home prices seeing year-over-year gains of less than 4% by July, the report noted. However, with both supply (-36%) and demand (-45%) still sitting well below pre-pandemic levels, meaningful 30-year interest rate movements could shift the market relatively quickly in either direction, researchers said.
“While we’ve made meaningful strides in terms of inventory improvement, there are still roughly 36% fewer listings than normal for this time of year,” Walden added. “Likewise, in the face of higher rates as well as prices, purchase mortgage demand remains about 45% off comparable periods in 2018 and 2019. As we’ve seen in recent years, any substantial move in rates can result in those supply/demand dynamics shifting quickly, either bolstering or softening home prices."
