Housing inventory ‘beginning to surge’ across U.S., expert warns

A lack of housing inventory has kept home prices rising, but that could soon change
By Sam Bourgi
•
11 October 2024
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Housing inventories are beginning to rise across much of the United States, a trend that could put an end to the relentless pace of home-price appreciation since the pandemic.

According to Revolut Consulting founder Nick Gerli, inventories in ten states have risen by at least 40% annually as of September, led by Vermont (60.6%), Florida (59%), Georgia (48.8%), North Carolina (48.4%), and Washington (47.6%).

Arizona, California, and Tennessee are also in the top ten.

“As inventory continues to grow, sellers will likely cut prices by more,” said Gerli. “Many of these areas are experiencing a slowdown of people moving in, which is leading to a rise in supply.”

According to Gerli, these states have seen significant investor activity in recent years, which has encouraged homebuilders to ramp up production. As Creditnews reported, investors purchased one out of every six U.S. homes sold in the second quarter.

However, with inventories flooding the market, real estate investments aren’t earning the same returns as they were previously.

“Trends [that] pushed the market up during the boom [...] are now leading to an inundation of supply as the downcycle begins,” said Gerli.

Based on Gerli’s recent commentary, surging inventories are the tip of a much larger iceberg that threatens to topple the U.S. housing market.

The bursting of the bubble?

Gerli first drew attention to rising inventories in the U.S. South, but as recent data indicated, the problem is spreading to parts of the Northeast and West.

Soon, it could engulf most of the country, threatening to pop a housing bubble that has grown beyond anything America has ever witnessed.

As Gerli pointed out, inflation-adjusted home values are nearly 100% higher than the 130-year average. Unless there are new buyers, prices could fall sharply in the coming years.

In the meantime, leading indicators like pending home sales show that housing demand remains in the gutter and is unlikely to improve unless mortgage rates decline substantially.

Of course, industry players like the National Association of Realtors (NAR) and Zillow deny that the housing market is heading for disaster.

For example, NAR chief economist Lawrence Yun recently opined that the housing market is still experiencing a shortage. When combined with job creation, there’s no indication that a major downturn is on the horizon.

CoreLogic chief economist Selma Hepp agreed, but cautioned that the outlook on real estate could change if there was a “significant surge in the unemployment rate.”

While that significant surge hasn’t occurred yet, unemployment has risen noticeably since the beginning of the year. There’s also evidence that the job market hasn’t been nearly as strong as economists initially believed.

As Creditnews reported, the U.S. government downwardly revised its job-growth estimates by a whopping 818,000 between March 2023 and March 2024.

Economists warn a similar revision could come when people least expect it.

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