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Market Needs 2.4 Million More Homes for Healthy Supply

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Market Data + Trends

Market Needs 2.4 Million More Homes for Healthy Supply


April 9, 2021
Row of homes
Photo: PT Hamilton

Homebuyers are gearing up to face the most contentious spring market with inventory at near historic lows. To meet the healthy level of housing inventory, there would need to be 2.4 million more homes on the market, according to the National Association of Home Builders. This would be a 6-month supply, but currently, inventory of homes rested at 1.07 million—a 1.8 month supply. The majority of inventory comes from the 1.03 million existing homes, with the other being 42,000 new single-family homes. A healthy six-month supply would be the golden amount needed to keep home prices from jumping.

There's a dire lack of inventory across all metropolitan areas. Realtor.com reported that only 4 out of 381 metro areas or just 1% of metropolitan areas had more active listings in March 2021 compared to one year ago (Odessa, Texas, Urban Honolulu, Midland, Texas, and Harrisonburg, Virginia). The decline in active listings are mind-boggling, with 375 out of 381 metro areas posting double-digit declines.

Demand (pending listings) is outstripping supply (active listings) in 70% of metro areas

A leading indicator of home sales and a good indicator of the demand for homes is pending listings. Most pending listings will turn into sales, and based on NAR's Realtors® Confidence Index Survey, 6% of contracts are terminated (latest data as of February 2021).

In 70% of metro areas (265 out of 381 metro areas tracked by realtor.com®), the number of pending listings that can be expected on a given day in the month was higher than the number of active listings that can be expected on any given day in the month.

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