Published by REALTOR.com | June 29, 2024
Housing experts have been speculating that the laws of supply and demand may be finally catching up to market conditions. Some are forecasting a correction, or even a crash.
It’s been about two years since mortgage rates hiked up, slamming the brakes on what had been a historically racy housing market.
But even as the number of sales has turned sharply downward, home prices have broadly continued to tick up nationally, squeezing more affordability from what is already one of the most unaffordable moments in the housing market in decades.
Yet in recent weeks, housing experts have been speculating that the laws of supply and demand may be finally catching up to market conditions. Some are forecasting a correction, or even a crash.
According to Technical Traders strategist Chris Vermeulen, recent trends in new construction look to be a “sign that things are really breaking down.”
What are the odds that these predictions might come true?
When we dig into the data, what’s immediately clear is the housing market is no monolith. Some markets thrive, while others wilt.
Out of the country’s 150 largest metros, 24 are already seeing year-over-year listing price declines as of May. Of those, 13 are also down compared with two years ago.
Might this trickle of descending prices turn into a torrent that pushes America’s entire housing market into official correction territory? To pinpoint the answer, it can help to know where prices are poised to plummet next.
Where prices are poised to fall
We sifted through Realtor.com® housing data among the 150 largest metros, looking for some tried-and-true supply-and-demand metrics that signal prices may soon subside.
We first identified housing markets with the highest growth in the number of homes for sale compared with a year ago, plus lengthening time on the market. We also checked these variables against two years earlier, which is about when the COVID-19 pandemic housing market peaked with soaring demand and record-high prices.
From there, we whittled this list by looking only at metros where listing levels are currently above where they were at the same time in 2019, before the housing market’s rapid shift.
“When inventory rises faster than demand, prices have to adjust eventually,” Realtor.com senior economic analyst Hannah Jones says. “Increasing inventory levels are a sign that the market is starting to balance out.”
In the end, we were left with a handful of markets, with some clear regional trends, where home prices are still rising, but where supply is mounting and buyer demand seems tepid: These are the places where list prices appear fated to fall in the coming months, and if enough dominoes follow, a correction could be in the cards.
