There's a reason homebuyers have had such a difficult time navigating the housing market this year: Housing inventory has been down in a very big way, and that's led to a host of unfavorable conditions, from ultra-high listing prices to bidding wars.
In May, there were just 1.16 million unsold existing homes on the market, according to the National Association of Realtors. That amounts to a 2.6-month supply at the current monthly sales pace. But it generally takes a minimum of a four-month supply to create an equalized housing market, so until listings pick up, sellers will continue to have the upper hand.
But home listings could pick up during the latter part of 2022. And if that happens, buyers will benefit in more ways than one.
Image source: Getty Images.
Recession fears could motivate sellers
For months, financial experts have been sounding warnings that a recession may be coming soon. The Federal Reserve has been implementing substantial rate hikes in an effort to slow down inflation. But that could lead to an extreme decline in consumer spending, which could, in turn, spur a downturn.
Once economic conditions decline, unemployment numbers could tick upward, taking homebuying off the table for more people. That's not a scenario that would favor sellers. And so many might aim to get ahead of that by listing their homes sooner rather than later -- while buyer demand is still strong.
Rising mortgage rates could drive buyers away
Historically speaking, today's mortgage rates are by no means as bad as it gets. But rates have risen sharply since the start of the year, and now, they're at their highest point in well over a decade. Worse yet, they could keep rising in the course of the next year.
But the combination of sky-high home prices and expensive borrowing rates could be enough to push buyers out of the market. Once that happens, the gap between housing supply and demand will narrow, and sellers will lose their edge. And so some sellers may opt to act quickly and list their homes this year -- before mortgages rates drive more buyers away.
A potential light at the end of the tunnel
For months on end, everyday buyers and real estate investors alike have struggled with low housing inventory. But economic and mortgage-related concerns could inspire sellers to list more homes during the latter part of 2022. If that happens, home prices should start to come down, giving buyers some much-needed relief, given where home prices have sat over the past year.
Plus, extra inventory can make the process of buying a home a lot less stressful. When housing supply is ample, buyers don't need to constantly duke it out in bidding wars, which are notoriously harrowing. And there's something to be said for having more options when it comes to seeking out specific home features or layouts.
Of course, there's no guarantee that housing inventory will pick up substantially over the next number of months. But based on these factors, there's reason to believe it just might.
