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Housing Market Supply and Demand: What Today's Data Tells Us

Reading Current Market Conditions to Predict What Comes Next

You understand mortgage rates now—they're at 6-7%, up from 3% just three years ago. But what's actually happening in the housing market? Are buyers still buying? Are sellers listing? Is inventory building or shrinking?

This article analyzes current supply and demand dynamics using real-time data to answer the critical question: Where is this market heading?

We'll test whether we're seeing: (1) demand destruction, (2) inventory accumulation, (3) price adjustments, or (4) a frozen market where nobody moves.

Test 1: What's Happening to Housing Inventory?

The most direct measure of supply is "months of supply"—how many months it would take to sell all current inventory at the current sales pace. This tells us if we're in a buyer's market (high supply) or seller's market (low supply).

Key thresholds:

Months of Housing Supply (1990-Present)

Months of supply peaked at 11+ during the 2008 crisis, bottomed below 2 months during the 2020-2021 frenzy. Latest data (May 2025) shows 9.6 months—a clear buyer's market.

What the data shows:

What this predicts: The shift from 1.6 months (extreme seller's market) to 9.6 months (buyer's market) is significant. Buyers now have negotiating power. However, this still isn't 2008-level oversupply (11+ months). Without forced selling, prices will soften but likely won't crash. The extreme seller's market is definitively over.

Test 2: Are Prices Finally Falling?

With lower sales and normalizing inventory, are prices adjusting? Median sales price tells us what buyers are actually paying.

Median Home Sales Price

Median sales price (quarterly data). Notice the resilience—prices rarely fall nationally, even when sales collapse.

What the data shows:

Why aren't prices crashing despite the shift to a buyer's market?

What this predicts: Without forced selling (recession, unemployment spike, foreclosure wave), prices will stay sticky despite inventory rising. The market is softening (small declines likely), but no crash. The adjustment is happening through VOLUME (fewer sales) and TIME (slower sales) rather than dramatic PRICE cuts.

Test 3: How Does This Compare to Past Cycles?

Let's see the full picture: supply and mortgage rates together.

Supply vs Mortgage Rates

Months of supply (purple) and mortgage rates (red) show how rate changes affect market balance. Gray bars are recessions.

Pattern recognition across cycles:

2008 Cycle:

2020-2022 Cycle:

Current Cycle (2022-2025):

Key insight: Mortgage rates DON'T determine inventory alone. In 2008, rates fell but inventory surged (forced selling). In 2022-2025, rates rose AND inventory rose (demand destruction + some forced moves). But the inventory increase happened gradually—not a sudden flood like 2008. This is why prices are sticky rather than crashing.

Test 4: What About New Home Construction?

Builders respond to market signals. New home sales reveal whether supply is expanding (more construction) or contracting (builders waiting).

New Home Sales

New home sales show builder confidence and supply response. Low sales signal builders are pulling back.

What the data shows:

What this predicts: Builders are reducing supply by building less. This prevents inventory from surging. When rates fall, builders will ramp up—but there's a 12-18 month lag from permit to completion. Supply response is slow.

Key Takeaways

1. The market is adjusting through volume, not price. Sales fell 33%, but prices are only down 5%. This is the lock-in effect in action—owners with 3% mortgages won't sell to get 7% mortgages.

2. No supply wave is coming. Unlike 2008 (foreclosure tsunami), today has no forced selling. Inventory is normalizing, not surging. Without forced sales, prices won't crash.

3. The freeze creates opportunity—eventually. Pent-up demand is building. When rates fall (even to 5-5.5%), sales will surge. But if supply stays tight, prices will rise again.

4. First-time buyers face a dilemma. Wait for lower rates → face more competition. Buy now at high rates → at least you're in the market (can refinance later if rates fall).

5. Watch for cracks in the lock-in effect. Job losses, divorces, baby boomer downsizing—these force people to sell regardless of rates. If forced selling accelerates, inventory surges and prices fall.

6. Regional variation matters enormously. Markets with job growth and limited land (coastal cities) will stay tight. Markets with exodus trends (expensive cities losing population) will see sharper price declines.

What to Watch Next

To predict where this market goes, track these indicators monthly:

The data tells a clear story: This isn't 2008. It's a rate-induced freeze where sellers refuse to sell and buyers can't afford to buy. The outcome depends entirely on what the Fed does next—and whether the economy can handle staying frozen this long.