Watch Inventory and Why Measures of Existing Home Inventory appear Different

We are in a period of significant policy uncertainty and there isn’t a good historical analog for the current period. However, for housing, the key will be to watch inventory.

Existing home inventory will provide clues on house prices, and a combination of existing and new home inventory will indicate what will happen with housing starts.

Watch Inventory

Here are a few examples of when inventory helped me call some turning points for house prices (this section is an update to a previous article):

Starting in January 2005, I was very bearish on housing, but I wasn’t sure when the market would turn. Speculative bubbles can go on and on. However, the increase in inventory in late 2005 (see red arrow on graph below) helped me call the top for house prices in 2006.

Several years later, in early 2012, when many people were still bearish on housing, the plunge in inventory in 2011 (blue arrow on graph below) helped me call the bottom for house prices in early 2012 (see The Housing Bottom is Here).

Seven years ago, in January 2018, I was quoted in a Bloomberg article that included a bearish outlook for housing. I disagreed, and the steady level of inventory helped (see orange arrow above):

Bill McBride, who runs the Calculated Risk blog and also called the crash, doesn’t think home prices are inflated this time around. Unlike in 2005, lenders are acting responsibly and the Wild West of real estate speculation hasn’t returned, he said. There is less to speculate on, too. Compared with the overbuilding that preceded the bust, today’s pace of construction isn’t fast enough, he said.

“Lending standards are still pretty good,” McBride said, and he doesn’t expect mortgage rates to “take off” in the short term.

And in December 2018, I disagreed with Professor Shiller A comment on Professor Shiller's "The Housing Boom Is Already Gigantic. How Long Can It Last?". My conclusion:

No big deal, and definitely not a "gigantic" boom in house prices.

In 2019, when several commentators were bearish on housing, I pointed out there was no sharp increase in housing inventory (like in 2005), and that was one of the reasons I remained optimistic on housing and the economy (correctly!).

And the sharp decline in inventory during the pandemic (green arrow) was an indicator that price appreciation would increase. Inventory declined due to a combination of potential sellers keeping their properties off the market during a pandemic, and a pickup in buying due to record low mortgage rates, a move away from multi-family rentals and strong second home buying (to escape the high-density cities). And at the same time, demographics were favorable for home buying (a large cohort has moved into the peak home buying years).

Now inventory is increasing, but still below pre-pandemic levels.

For new home sales and housing starts, a high level of distressed sales keeps sales and starts down as happened following the housing bubble. And a low level of existing home inventory boosts new home sales and housing starts - even when interest rates increase as happened in 2022. For example, see: Two Key Housing Themes: Low Inventory and Few Distressed Sales, Some "Good News" for Homebuilders, and More Good News for Homebuilders.

Now, existing home inventory is increasing and that is not good news for homebuilders.

Why Measures of Existing Home Inventory appear Different

Last month the National Association of REALTORS® (NAR) reported that inventory was up 17% year-over-year:

Total housing inventory registered at the end of February was 1.24 million units, up 5.1% from January and 17% from one year ago (1.06 million).

Here is a graph showing the year-over-year (YoY) change in reported existing home inventory and months-of-supply.

And here is a graph from Redfin weekly data showing active inventory is up 11.5% year-over-year as of April 6, 2025:

And from Realtor.com showing active inventory up 28.5% in March: March 2025 Monthly Housing Market Trends Report

And on a weekly basis, Realtor.com reported inventory was up 30.3% year-over-year.

Active inventory climbed 30.3% from a year ago. The number of homes actively for sale remains significantly higher than last year, continuing a 74-week streak of annual gains.

Altos Research also reported that single family inventory was up 33.4% compared to the same week in 2024, and down 17.5% compared to the same week in 2019. Here is a graph shows the seasonal pattern for active single-family inventory since 2015. The red line is for 2023. The black line is for 2019. Note that inventory is up from the previous two years (the record low was in 2022), but still well below normal levels.

And my early local market survey showed active inventory was up 38% year-over-year in March (I try to just use active inventory, but some sites probably include some pending sales).

Understanding the Differences

First, it appears the NAR is including some pending sales in their inventory total. Housing economist Tom Lawler noted this in 2021:

As I’ve noted before, the inventory measure in most publicly-released local realtor/MLS reports excludes listings with pending contracts, but that is not the case for many of the reports sent to the NAR (referred to as the “NAR Report!”).

Here is a graph comparing the year-over-year change in Realtor.com’s active inventory, the NAR’s inventory, and Realtor.com inventory including pending sales. Note that the blue line (NAR) and dashed black line (Realtor including pending sales) track.

As Lawler noted, including pending sales understated the decline in active inventory in 2020 and 2021, and is now understating the increase in active inventory.

But what about Redfin? Redfin takes a very different approach. Their active inventory number for any month includes homes that came on the market and sold quickly during the month, whereas the other measures are a snapshot at the end of the month (or week). For March, Redfin is saying the total number of active listings (including homes that sold quickly during the month) was up 11.5% YoY, whereas - according to Realtor.com, Altos, and my local surveys, active listings is up significantly more. Two different approaches to reporting the data.

Although tracking the level of immediate sales is important, I’ll be using the Altos / Realtor.com approach to reporting year-over-year active inventory (snapshot at the end of the period) in addition to the monthly NAR report.

Anyway we look at inventory, the overall level of active inventory is increasing while sales remain sluggish. This means that the months-of-supply is increasing. According to the NAR, months-of-supply was at 3.5 months in February compared to 3.6 months in February 2019. It appears national months-of-supply will be above pre-pandemic levels this summer, and likely above 5.0 months (putting some pressure on prices).

There are some areas (mostly in Florida and Texas) with inventory already over 6 months. These areas are starting to see price declines. The regional differences in inventory are significant!