Good News for Buyers: Housing Inventory Was Up in June

More homes hit the market in June. If that trend continues, home prices could start to drop.

Buying a home in today's real estate market is no easy feat, especially when we take a look at where housing prices stand. In June, the median price of an existing home sold rose to an all-time high of $363,300. And not surprisingly, many potential buyers are being forced to reassess their plans due to affordability issues.

Why are homes so darn expensive? A big part of it is that mortgage rates are sitting at very low levels, historically speaking, so there's a lot of demand from buyers. That demand, in turn, is leading to bidding wars, where multiple buyers keep coming back with higher offers on the same property in the hopes of getting an offer accepted.

But there's another reason why home prices are so high: Available properties have been in low supply for months. Many sellers have held off on listing their homes during the pandemic, and any time there's more demand for a given commodity than there is available supply, prices have the potential to rise.

That said, housing inventory did rise a bit in June. As of the end of the month, there were 1.25 million available homes for sale, representing a 2.6-month supply. That marked a slight improvement from May's 2.5-month supply. And if inventory continues to improve, it could cause home prices to finally start coming down.

A good sign for buyers?

June's 2.6-month supply of homes for sale is an improvement over the numbers we were seeing earlier this year. But to be clear, it's still not a particularly healthy supply of homes -- at least not in the context of creating an even housing market where neither sellers or buyers have the clear upper hand.

To create that equalized housing market, it generally takes a 4- or 5-month supply of homes for there to be enough inventory for the people who want to buy. Given that housing inventory only rose from 2.5 months in May to 2.6 months in June, we shouldn't expect the supply of available homes to spring up overnight. This means that buyers may still be in for several more months of inflated home prices before enough inventory hits the market that it causes those prices to decline.

Still, at this point, buyers should be thankful for any increase in inventory we get. And since sellers still have a few more months to capitalize on milder weather, we could see more homes hit the market in the near term before a wintertime slowdown.

Of course, today's buyers may still face a lack of affordable homes in their preferred neighborhoods. And they may have to resign themselves to taking out higher mortgages to swing the homes they do find.

Mortgage rates are likely to remain low not just for the rest of the year, but well into 2022, so it may be in buyers' best interest to pause their house-hunting and wait for inventory to pick up beyond June's modest improvement. Holding out for a number of months could spell the difference between paying a huge premium for a home versus spending a lot less.