Homebuyers in 2025 are finally getting some good news. Active housing inventory is returning to the levels we experienced before the pandemic, which means the chaotic and unhealthy housing market of the last several years is finally a thing of the past.
As someone who was concerned about home prices skyrocketing out of control between 2020 and 2022, I am happy to see the housing market just returning to normal. For the housing market to remain functional for decades to come, this adjustment was necessary.
Over the past few years, I set a marker for housing inventory: once inventory reaches between 1.52 million and 1.93 million, then homebuyers will have a more functional housing market, rather than the savagely unhealthy housing market we’ve seen since 2020.
More housing options is a good thing for homebuyers
While housing inventory is rising, it’s a positive development, not a repeat of the collapse that followed the Great Financial Crisis. As you can see below, the sales collapse from 2005 to 2007 resulted in a vertical spike in active listings, which increased inventory from 2.5 million to 4 million. The sales collapse in 2022 (due to sudden rate hikes) did not have the same result, and it has taken three years of the lowest home sales ever — adjusting to the workforce — to get active listings back to 1.54 million.
Why Is this Important?
I believe mortgage rates will remain higher for an extended period until the labor market breaks, so the only real solution to housing affordability is an increase in housing supply, which would help stabilize home prices. I am excited about the recent data showing that existing home sales have reached a bottom. With each passing year of cooling home prices, housing becomes a bit more affordable since wages also increase and more households are formed.
This can’t happen if home prices are rising 10%-20% a year. It doesn’t even work if home prices are rising above 5.5% a year. However, low single-digit home-price growth can make housing more affordable over time, which then makes the backdrop for home sales growth easier when mortgage rates head toward 6%.
Typically, the growth of home sales over the years can be attributed to a pattern that follows periods of high mortgage rates. Following such a phase, a recession often occurs, leading to lower interest rates and, subsequently, an increase in home sales for years to come. When we consider our current situation in historical context, we can see that even with elevated prices, mortgage rates, property taxes, and insurance costs, this trend persists, as home sales are no longer crashing; instead, they’re creating an extremely low base to work from.
Follow the Housing Market Tracker for live weekly data
The existing home sales and inventory report is excellent, but it’s also lagging behind real-time data. Our Housing Market Tracker data is ahead of the existing home sales data, and we have that data ready for you every weekend. We track weekly pending and total pending sales to gain a real-time view of where demand is headed. Demand has remained firm, even with elevated rates throughout the year.
Here, with our total pending home sales data, we can see slight year-over-year growth even with elevated rates.
Conclusion
I am optimistic about the housing market’s future because it is healing itself and returning to normal. This doesn’t mean that home prices are crashing like they did in 2008, as today’s home price data demonstrates. The long-term and historical data on home prices dating back to 1942 show that we typically experience a period of rapid price growth followed by a cooling period. The housing market of 2008 was an anomaly in this pattern that has persisted for over 80 years. However, for the housing market to function effectively, we need to see an increase in inventory and more choices for homebuyers; otherwise, we will remain stuck at these low sales levels for an extended period.
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