Watch inventory to see how the market will behave

To get a feel for what the housing market will look like as we head into the prime buying and selling season the metric that stands out is inventory. At the height of last year’s multi-offers bonanza, the active inventory of homes for sale was 58% below the 2019 pre-pandemic level. 

The big question this year is how the demand side will behave. Two of the primary moving parts behind an answer to that question are: 

  • How mortgage rates move the market? There’s little doubt they will move higher. The only question is how much and how often. It looks like the FED’s first increase will come in March, and mortgage rates should quickly react. It’s all happening just in time for the traditional peak home buying and selling season. Will mortgage rate increases send buyers rushing into the market to lock in the lowest rate possible? If so, it could mark a short-term situation that looks a lot like last year. Or will the reality of higher monthly mortgage payments cause buyers to back off? 
  • The second part is demographics. Millennials continue aging into their prime home-buying years, and the eldest GenZers beginning are queuing up. Combined, they make up the largest share of the Tri-Cities population. And they represent a lot of pent-up demand. The downside is the region’s affordability and the number of affordable homes for sale.  

Currently, the inventory situation at the first month of the year doesn’t offer a lot of relief. At the end of January active inventory dropped to a record low. There were 921 single-family and condo active listings on the market. That’s down 13% from December, down 31% from January last year, and down 60% from the pre-pandemic level. It also represents a little more than one month of inventory. Balanced market conditions are five to six months of inventory. 

Early last year, local market watchers interpreted a very slow increase in active inventory as a sign that natural market forces would take some of the crazy out of the market. That slow stabilization began in April and continued through September. It stalled in October then reversed itself.  

New listing v. pending sales offers a little more context than just watching the monthly active inventory ebb and flow. Although about 5% of pending sales fall through, comparing the gap between new listings and new pending sales each month is a forward-looking indicator. 

The trend last year saw pending sales outnumber new listing for over half the year. That illustrated a market dynamic where demand was absorbing an already scarce inventory before sellers replenished it. 

The big question this year is how the demand side will behave. Two of the primary moving parts behind an answer to that question are: 

  • How mortgage rates move the market? There’s little doubt they will move higher. The only question is how much and how often. It looks like the FED’s first increase will come in March, and mortgage rates should quickly react. It’s all happening just in time for the traditional peak home buying and selling season. Will mortgage rate increases send buyers rushing into the market to lock in the lowest rate possible? If so, it could mark a short-term situation that looks a lot like last year. Or will the reality of higher monthly mortgage payments cause buyers to back off? 
  • The second part is demographics. Millennials continue aging into their prime home-buying years, and the eldest GenZers beginning are queuing up. Combined, they make up the largest share of the Tri-Cities population. And they represent a lot of pent-up demand. The downside is the region’s affordability and the number of affordable homes for sale.  

Currently, the inventory situation at the first month of the year doesn’t offer a lot of relief. At the end of January active inventory dropped to a record low. There were 921 single-family and condo active listings on the market. That’s down 13% from December, down 31% from January last year, and down 60% from the pre-pandemic level. It also represents a little more than one month of inventory. Balanced market conditions are five to six months of inventory. 

Early last year, local market watchers interpreted a very slow increase in active inventory as a sign that natural market forces would take some of the crazy out of the market. That slow stabilization began in April and continued through September. It stalled in October then reversed itself.  

New listing v. pending sales offers a little more context than just watching the monthly active inventory ebb and flow. Although about 5% of pending sales fall through, comparing the gap between new listings and new pending sales each month is a forward-looking indicator. 

The trend last year saw pending sales outnumber new listing for over half the year. That illustrated a market dynamic where demand was absorbing an already scarce inventory before sellers replenished it. 

Traditionally January and February are the months inventory begins bulking up for the prime season. Active inventory is dynamic. It changes every day. But if January is a signal of things to come, buckle up. 

The super-tight inventory isn’t just a NE Tenn. – SW Va. market situation. There are exceptions, but most local markets are seeing similar situations. It’s especially true for markets that saw too little new home construction in the wake of the housing crash during the Great Recession. 

The inventory run-up to this year’s prime season signals that more than ever before local market knowledge trumps anything that mass media pundits have to say about what’s happening on the national or state level. And the best source for that local knowledge is NETAR’s monthly and weekly market reports and the local Realtors® who keep their fingers on the market’s pulse. 

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region representing over 1,500 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. 



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NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us