March Housing Trends: Inventory Rises, Prices Stabilize and Construction Slows

March has marked a distinct shift in the housing market, with burgeoning home inventory and stabilizing prices shaping buyer and seller behaviors. According to Realtor.com, the nation witnessed a modest increase in newly listed homes, which has contributed to a slow yet steady growth in inventory, particularly in the South. However, despite the upswing in listings, homes remain scarce relative to historical norms, and prices high compared to incomes.

Rising Inventory in Southern Markets

The most significant trend observed in March is the notable increase in housing inventory, especially in Southern U.S. metros. Realtor.com reports a 35.8% year-over-year increase in active home listings in the South, a trend that is reshaping the market dynamics in the region.

This surge is not isolated -- Redfin also notes substantial inventory increases in Florida and Texas, driven by a high rate of new constructions intended to accommodate the influx of new residents during the pandemic. This growth in inventory, while beneficial in alleviating some of the market pressures, has led to more listings experiencing price cuts as the market begins to favor buyers.

Price Adjustments Amidst Growing Inventory

As inventory grows, sellers are increasingly finding themselves needing to adjust prices to attract buyers.

Redfin highlights that in markets like North Port-Sarasota, Tampa, and Orlando, substantial shares of listings have seen price reductions.

For instance, in North Port-Sarasota, nearly half of all listings have experienced price cuts. This trend is indicative of a broader shift toward buyer-friendly market conditions, particularly in areas that previously saw heated competition and price escalations.

Construction Trends: A Slowdown in Starts

The construction sector has shown signs of slowing down, with new residential construction starts experiencing a significant decline.

According to the U.S. Census Bureau, housing starts in March fell by 14.7% from February, with single-family starts down by 12.4%. This slowdown can be attributed to various factors, including rising material costs and a cooling demand post-pandemic.

The decrease in housing starts is a crucial indicator of future inventory levels and can potentially exacerbate the current housing shortage if the trend continues.

Mortgage Rates and Market Adaptations

The housing market continues to grapple with high mortgage rates, which are expected to persist as the Federal Reserve signals a "higher for longer" interest rate environment. This situation is exacerbating the lock-in effect, where potential sellers are deterred from moving due to the higher costs associated with new mortgages.

As reported by Redfin, the average 30-year fixed mortgage rate stood at 6.82% in March, putting additional pressure on market liquidity.

Moreover, sellers are now navigating a landscape where strategic pricing becomes crucial.

As Eric Auciello, a Redfin sales manager, suggests, "The comps from six months ago don’t exist now," implying that sellers need to set realistic prices to remain competitive. Buyers, on the other hand, find themselves in a favorable position to negotiate, especially in markets flooded with new listings and where homes are sitting longer before selling.

Looking Ahead

As the market transitions into the spring buying season, the trends observed in March suggest a shift towards a more balanced market, albeit slowly. The increase in inventory, particularly in the Southern U.S., alongside adjustments in home prices, points to a cooling market phase.

However, the ongoing challenges posed by high mortgage rates and the construction slowdown indicate that the path to a fully stabilized market remains complex and fraught with uncertainties.