The past couple of years have been crazy! We have seen a combination of few homes offered for sale, and strong buyer demand. Buyers have had difficulty finding a home to purchase at any price. The result has been rising home prices. Recent increases in mortgage rates have reduced some demand. The higher cost of financing a home pushed some buyers out of the market. High home prices are even higher when you factor in financing costs.

A key statistic is the inventory of homes offered for sale. Appraisers look at this as a gauge of the home market’s health. Months of inventory reflects how many months it would take to sell the current inventory of homes, at the current rate of sales. This figure includes the supply side, in the number of homes offered for sale. It also includes the demand side, in the number of homes buyers are willing to purchase. Most experts agree that a 6-month supply shows a healthy balance of supply and demand.

Below is a graph of monthly inventory for the past year. From January 2022 through November 2022, inventory levels were well below 6 months. This indicates a shortage of homes for sale. The low inventory of homes for sale has led to a seller’s market and increasing prices. Sellers have not had to compete to attract buyers. Buyers have had to compete to attract sellers. One of the best ways to get a seller’s attention is to offer a higher price. Competition between buyers has resulted in rising home prices.

It’s easy to look at the above graph with concern. Current inventory levels are well above the previous months’ supply. A second look shows us that spikes in housing supply are common during the winter months. The graphs below show inventory trends for the past 5-years and for the past 10-years. They show us two things. A seasonal spike is normal during the winter months. They also show us a steady decline in overall inventory levels since 2012. Today’s market has been in the making for several years.

We all want to know what direction the housing market will take in 2023. This remains unknown. Appraisers will pay close attention to market statistics such as housing inventory. Mortgage rates and the general health of our economy will be important influences on the market’s direction.