What Rising Inventory Means for the 2025 Housing Market

As the year draws to a close, available unsold inventory of homes on the market is nearly 27% greater than a year ago. Almost every market in the country has more homes available now than at the end of 2023. Ten states have more inventory unsold than in 2019, which was the last sort of “normal” year before the pandemic, and a few states have more homes on the market now than any time in the last 8-10 years. Even in markets with tight inventory like Chicago and New England, it's still rising. And 2025 is poised to continue the trend of rising inventory across the country. We’ll probably finish 2025 with 15% more homes available than we have now. 

So, what happens when inventory rises for four years in a row? How will that impact home prices in 2025?

In this week's video, we'll look at early signals for inventory, pricing and more in the new year.

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the week of December 16, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

It is December, of course, so inventory is falling for the season. There will be fewer homes on the market each week until February or so. There are now 682,000 single family homes on the market across the country. That’s down 1% for the week, as you’d expect for December. And we have almost 27% more homes on the market now than last year at this time. 

In this long term view of inventory you can see a few trends that are important. At the right end of the chart see how we’re finishing three full years of rising inventory. 2025 is poised to keep the trend. As it continues, we’re slowly getting closer to the old normal levels. While we have 27% more homes for sale now than last year, we have 22% fewer homes on the market than at the end of 2018. In the 2010 - the teens- inventory fell each year with the very low interest rates. In the 2020s inventory grows each year with consistently more expensive money. By the end of next year we should be basically back to the old normal levels of inventory. If a big recession hits in 2025, it typically takes 9-12 months for that to create inventory, so that would be 2026 before we’d see a surge of homes for sale from a recession. That means 2025 inventory will likely grow but not shoot dramatically higher.

Other takeaways on the inventory data at the end of the year: First is to expect more homes available next year which means greater selection for home buyers, and less competition. That evidence is clear - the rising inventory trend is underway. 

The second takeaway is more speculative. That is that we expect inventory to grow more in the north and midwest next year with some resumption of migration from the north to the south, which has slowed recently. As migration slowed, we’ve stopped selling homes in the north and stopped buying them in the south. So inventory is tight in the north and growing in the south. But I expect that migration to resume a little bit in 2025 and therefore the inventory disparity to begin to even back out. Now, we don’t yet have evidence of this evening out starting. Right now all the inventory build is in the south and west. So this is just an expectation I have based on the fact that we’ve been stuck for so long, I expect some unsticking. This assumes the job market loosening up some, and interest rates to stabilize in the 6s, hopefully low 6s, which will make it easier for people to move.

New Listings

When we look at the sellers entering the market, there were 45,000 new listings this week. That is 14% more home sellers listing their properties in December than the same week a year ago. This quantity of sellers is more similar to the pre-pandemic years than we’ve seen in a long time. We have a growing number of sellers each week compared to last year. 

This to me is an indicator that we’re slowly emerging from the post-pandemic era. Because there are more sellers, this contributes to the hypothesis that the northern states with very tight inventory will begin to see some evening out.  Last week in the Altos webinar I showed data about how Dallas has the same level of new sellers each week now as it did in the 2010s decade. Where Chicago is still very few new listings each week  But even Chicago is rising, with more sellers. And that looks poised to continue after the new year. 

When we include the immediate sales, the overall seller growth is 7.7% more than a year ago. All year long we’ve been averaging about 8% more sellers each week than last year. That trend looks like it’ll continue into 2025. More supply means more selection for buyers, it means less upward pressure on prices, and in some markets, more seller supply means home prices will move down in 2025.

Pending Home Sales

Meanwhile, there were 47,000 new contracts started for single family home sales in the last week. That was a little bounce up from the week prior and 3% more sales started than the same week a year ago. These December and January weeks are the lowest for the year, of course, with home sales only in the 30 or 40,000 range per week for the next month or so. 

This month is averaging 50,000 new contracts pending each week, which is actually 10% more home sales than last year.  In this chart, we’re showing the average weekly sales rate for single family homes. At the far right side of the chart you can see this year’s line is consistently above last year. More sales starting each week. You can also see that we have another month of fewer sales until mid-January when the spring activity resumes. The curve continues to trend down into January.

Notably in this view, you can see that 2022 started very strong for home sales. That’s the light red line here at the left end of the chart. In the first half of 2022 there were 20 or 25% more sales than we saw in the subsequent two years. 2022 was still a frenzy of buying with the last of the pandemic demand happening as rising mortgage rates were very obvious. So as we round into the new year 2025, we’ll see more sales than January of 2024, but not as many as back in 2022. 

Recent weeks have been averaging about 10% more home sales than last year. Our current expectation is that pace probably isn’t sustainable for the full year, so overall for 2025 home sales will grow about 5% over this year. We’re looking at 4.2 million existing home sales for 2025.

Home Prices

The median price for existing home sales in the US was $375,000 this week. That’s a downtick for the week, as is totally normal for December. 

The recent average price is just under $384,000. That’s what people are paying for homes across the US this autumn. In this chart we have each of the last three years. I’ve highlighted the two moments in 2022 when home prices adjusted down as the market shifted - in June and again in October of 2022. That’s the gray zones here with the light red line showing 2022’s home price curve. Note at that time, inventory was rising quickly, transaction volume was cratering and we watched price cuts jump each week for existing home sellers.

Now contrast the 2024 line. In late summer this year mortgage rates were staying higher for longer than anyone expected. By August, home prices were on a trajectory to trend lower by the end of the year. In late summer we had a temporary reprieve with mortgage rates dropping close to 6% and one of the things that happened was that home prices got a boost. That says to me that people are optimizing for mortgage payments. When the cost of money goes up, we buy less house. We buy at lower price points. So that September dip in mortgage rates correlated with the dark line here - 2024’s home sales prices - staying elevated compared to the opposite happening in late 2022 and 2023. 

In this chart, we’re using the last four weeks of data to smooth out the weekly jumps and dips. I think this is a very clear sign for where home prices finish 2024 and start the next year. With about a 5% gain. 

We’ve been forecasting a 3.5% home price gain for the full year next year, but since we have n’ot seen prices receding from the current pace, we will be on the lookout to revise UP our home price forecast in the first quarter if these trends hold. Wouldn’t that be a surprise.

Price Reductions

That current sales price data seems more bullish than I’ve been recently. The price reductions data, which is a forward looking leading indicator for future sales activity, is not super bullish though. This measure only fell by 20 basis points this week to 38.2%. That’s 38.2% of the homes on the market now which have taken a price cut from the original list price.  

None of the price data is as weak as it was at the end of 2022. You could see that in the last chart with the sales price curves, and you can see it here with the price reductions data. 2022 is the light red line at the top of the chart. At this point in 2022 still over 40% of the homes on the market had price cuts. Now that number is 38%. It’s still elevated, but closer to the normal range. The gray lines in this chart are previous years. You can see how normally this time of year, 35% of homes have a price cut and that’s falling quickly each week for the holidays. This year the number hasn’t fallen much yet. Something to keep an eye on.

The cooler markets in the US, as measured by price reductions, have shifted from Florida to the Western cities again. Florida has its unique seasonal activity, with more transactions happening in the winter than most of the country. So Florida has its seasonal boost now, but has been fighting headwinds in terms of demand with high costs of insurance and climate risks facing much of the state. Supply of unsold homes in Florida is more than it has been in a bunch of years. It’s going to be interesting to watch next year what happens to pricing. As of right now, like the rest of the US, most of the Florida markets have resisted dramatic price drops, and there’s no immediate signal of that changing. We’d see that signal in this price reductions data, and we just don’t yet. 

After the new year, we’ll watch how steeply this number drops with fresh inventory in January and February and we’ll see how quickly it kicks up in Q2. 

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