The 2024 spring housing season is here! Although lending rates for the standard 30-year fixed-rate mortgage remain stubbornly stuck around 7%, U.S. economic growth continues to defy expectations, prompting many hopeful sellers and buyers to ask the same question: It is a buyer’s or a seller’s market?
Answer: It depends on where you live.
On a national level, the housing market continues to favor sellers due to inventory levels that remain about 40% below pre-pandemic levels, which have helped send median home prices up 6.6% year-over-year through February.
As the end of 2023 turned into the first few months of 2024, favorable conditions for the housing market included low unemployment, few mortgage delinquencies or foreclosures and home builders doing their best to boost the supply of newly built dwellings to make up for the shortfall of existing ones for sale. Less favorable conditions included low inventory of existing homes for sale and mortgage rates far above both pandemic and pre-pandemic levels, which is keeping a lid on affordability.
While many buyers have slowly been accepting the reality of higher lending rates and keeping their fingers crossed to refinance down the road, without more inventory, the national housing market is going to remain somewhat locked in place.
Not surprisingly, this chronic undersupply of existing homes for sale coupled with higher mortgage rates continues to have an impact on the U.S. News Housing Market Index, which consistently struggled to rise above 60.0 throughout 2023 and into 2024. As of April 17, however, it stood at 63.9. Using main economic indicators, the Performance Indicator offers insight into what factors are healthy and improving vs. which are unhealthy and declining.
Despite the headwinds of low inventory paired with housing sticker shock, there are certainly housing markets which continue to outperform the nation due to a combination of strong job growth and sufficient housing supply to meet demand.
How to Gauge Buyer’s Versus Seller’s Markets
Like any other product or service, if you’re looking to determine how competitive your local housing market may be, think of scarcity. Fortunately, there are now a variety of datasets freely available to homebuyers and sellers (as well as to tenants and landlords) to reveal the relative scarcity of available homes versus national figures. Some of these common metrics include sales prices, sales counts, inventory levels, months of supply and days on market.
[READ: How to Navigate the 2024 Spring Homebuying Season]
Change in Prices
Over the 12 months ending in February, the median price of homes sold in the U.S. rose 6.6% to about $413,000, according to Redfin. With this increase of more than double the rate of inflation for the same time period, the national housing market continues to favor sellers.
However, there were a few cooler markets tracked by the U.S. News HMI that noted annual price declines — led by San Antonio; Greeley, Colorado; and North Port, Florida — suggesting local housing markets leaning toward buyers.
While home prices did rise in Raleigh, North Carolina, and San Francisco, because the increases are not keeping up with inflation, these markets could be described as fairly neutral. The hottest seller’s markets based on price increases included San Diego; San Jose, California; and Seattle.
Changes in Home Sales Activity
For the 12-month period ending in February, home sales tracked by Redfin rose 1.2% to about 335,000, giving a slight edge to buyers. Based on falling sales activity, the coldest markets including Boise, Idaho, and Portland, Oregon, could be described as favoring sellers. The hotter buyer’s markets based on higher rates of sales activity include coastal markets such as San Francisco and San Jose as well as Minneapolis, Salt Lake City and Las Vegas.
Changes in Inventory Levels
Nationally, the inventory of homes for sale in February edged up 0.2% year-over-year. However, inventory levels in specific metropolitan statistical areas (MSAs) varied widely during the same time period, ranging from a decline of over 38% in Boise City (potentially favoring sellers) to a surge of 79.0% in Cape Coral, Florida, (favoring buyers).
Besides Boise City, the coldest markets based on inventory declines include Raleigh and Durham in North Carolina, Las Vegas and Chicago. In addition to Cape Coral, the hottest markets for rising inventory levels include three other markets in Florida (North Port, Tampa and Orlando) as well as Cincinnati, Ohio.
Months of Supply
In general, a housing market with five to seven months of supply could be described as balanced between buyers and sellers. Supply below 5.0 months favors sellers, while supply above 7.0 months favors buyers. Based on just 2.7 months of supply, the national housing market continues to strongly favor sellers and is down from 2.8 months in February 2023.
The Miami MSA, which was recently one of the country’s most popular markets, has gradually become colder as affordability levels have worsened. With 7.1 months of supply in February (up nearly 15% year-over-year and the highest level of the MSAs tracked by the HMI) the Miami housing market could be described as a slight buyer’s market.
Neutral markets based on months of supply include Kahului (mostly the island of Maui), Myrtle Beach, South Carolina, and North Port. Based on just 1.1 months of supply, the Seattle housing market is a strong seller’s market, followed by San Jose and San Diego.
Days on Market
During February, the typical home for sale in the U.S. was on the market for 48 days, up 85% from the median of 26 days the same month of 2023 but less than the median of 59 days in the prepandemic month of February 2019. When typical listings take longer to sell, that gives buyers additional room to negotiate sales terms.
In terms of days on the market, the coldest housing markets in February included Myrtle Beach and Austin, Texas, both of which reported median sales periods of over 80 days. Meanwhile, in Seattle and San Jose, the typical home was on the market less than 12 days. Other hot markets where homes sold quickly include San Francisco, San Diego and Cincinnati.
Some other sales metrics useful at the local level include the following:
— New listings.
— Sale-to-list price ratios.
— Percentage of homes selling above list price.
— Percentage of homes with price drops.
— Percentage of homes selling within two weeks.
Future Supply: Single-Family Detached Housing Permits
When the COVID-19 pandemic first hit and the economy largely shut down, builders with memories of overbuilding prior to the 2008 financial crisis promptly pulled back. Although it became clear that the first pandemic in the digital age was actually stoking demand for more livable space away from urban areas, because homebuilding requires both time and capital to restart, there was a notable lag in meeting this demand.
Fortunately, builders of single-family homes are slowly catching up. After hitting a low of 51,000 in December 2022, single-family detached building permits have risen to over 79,000 and are up 35.1% year-over-year.
[Related:Want to Buy a House in 2024? Follow these 14 Steps]
How to Gauge Tenant’s Versus Landlord’s Markets
For those looking to find an affordable home to lease as a tenant, although monthly rents are no longer growing at the torrid pace of 2021 and 2022 — and a boost in the supply of new multifamily units could mean gluts in certain markets — on a national level, housing rents are closely tracking inflation.
Through February, median rents observed by Zillow rose 2.9% year-over-year to $1,959 per month. But because rents are so closely tracking inflation — which was up 3.2% year-over-year in February — in real terms, national observed rents actually fell slightly. What this means for tenants is a mostly neutral market in which incentives such as a free month in exchange for a long-term lease could be more common in specific MSAs.
In general, the metrics suggesting a landlord’s market would mean vacancy rates under the supply/demand equilibrium rate of about 5.0%, rent hikes higher than the rate of inflation and little new housing supply coming online anytime soon.
Conversely, the metrics behind a tenant’s market include vacancy rates higher than 5.0%, declines in the asking rents of available units, tenant incentives becoming more commonplace and a glut of new supply nearing completion.
Changes in Rent Growth
For now, gone are the days when U.S. rents were rising at low double-digit levels. In the 12 months ending in February 2024, national observed rents rose 2.9%. In pre-pandemic 2019, observed rents were consistently rising about 4.0% per year, or double the rate of inflation at the time.
Although none of the MSAs tracked by the HMI are showing sharp declines in observed rents, several markets popular during the pandemic years are starting to show signs of softer markets for landlords. These coldest markets based on changes in rents include Austin, Cape Coral and San Antonio.
At the other end of the spectrum, Kahului saw its median rents rise 11.7% year-over-year through February, although that hike is largely due to the lack of housing supply in the aftermath of the Maui fires of August 2023. Other hot markets for rent increases include Cleveland, the South Carolina markets of Columbia and Charleston as well as Kansas City, Missouri.
Changes in Vacancy Rates
Although the national 5.0% vacancy rate for rental market equilibrium sometimes rises a percentage point or two (as it did in 2018 and 2019), it rarely falls far below that level because low vacancies generally prompt developers to build more supply.
However, if apartment builders overestimate demand (as they recently did in certain MSAs), that’s when vacancy levels increase and tenants can take advantage of the excess supply. After last hitting a low of 5.6% in the fourth quarter of 2021, by the final quarter of 2023 rental vacancy rates in the U.S. had risen to 6.6%.
Future Supply: Multifamily Building Permits
With rents rising at double-digit levels in 2021 and 2022, apartment builders saw ample opportunity to boost supply to meet the rising demand in outlying suburbs of major cities as well as growing cities away from the coasts.
However, given the complexity of most multifamily communities, the time required from planning to finishing construction can take longer than that for the first phases of newly built single-family homes. With this uncertainty in play, in some MSAs apartment developers didn’t adequately take into account the level of new supply from competitors, leading to short- and medium-term gluts favoring tenants.
In December 2021, apartment builders pulled over 73,000 permits versus the 46,500 permits approved in the pre-pandemic month of December 2019. By February 2024, with rental vacancy rates rising into the double digits in some MSAs and another 966,000 multifamily units still under construction, apartment builders filed just under 39,000 permits.
For tenants, while they can certainly expect to continue seeing lease incentives in markets with higher vacancy rates, they may not be around for long, especially if the for-sale housing market remains stuck in place due to elevated mortgage rates.
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Is it a Buyer’s or a Seller’s Market? originally appeared on usnews.com
