The housing shortage is finally starting to ease

The number of homes for sale on the market rose for the second straight month in December as a severe housing shortage finally begins to ease.

A new report from Realtor.com shows that the total number of homes for sale, including homes that were under contract but not yet sold, rose by 4.9% in December compared with the same time a year ago.

It marked the second month since June 2023 that would-be homebuyers were able to see a larger number of unsold homes than compared with the same time last year.

“Across the U.S. we’re seeing improvements in inventory levels, especially in the South,” said Danielle Hale, Realtor.com chief economist. 

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Inventory in the South surged by 7.7% in December when compared with the year-ago period. However, it was a different story elsewhere in the country. Inventory climbed just 0.2% in the Midwest, fell 8% in the Northeast and plunged 14.8% in the West.

And despite the uptick in the number of homes for sale last month, inventory remains muted when compared with several years ago. Available home supply is still down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.

“While the uptick in December inventory levels is encouraging, it is important to note that two-thirds of outstanding mortgages in the U.S. have a rate under 4% and more than 90% have a rate less than 6%,” Hale said. “We are optimistic that inventory levels are moving in a positive direction, but the number of homes on the market is still low relative to pre-pandemic levels.”

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Rates have been slow to retreat, but home prices have remained stubbornly high as buyers deal with limited inventory.  (David Paul Morris/Bloomberg via Getty Images / Getty Images)

The housing shortage began as a result of the astronomical rise in mortgage rates. The Federal Reserve’s aggressive interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades last year. 

Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.

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Although rates are slowly retreating – the rate on the 30-year fixed mortgage is currently hovering around 6.66%, according to Freddie Mac – they remain well above the pandemic-era lows of 3% and the 2019 average of 3.9%.