Conversely, when months’ supply is low, homes spend less time on the market and a higher percentage of homes sell above their initial list price.
As the months’ supply of homes increases, homes spend more days on the market on average and a lower percentage of homes sell above asking price. Months’ supply of homes is an especially important indicator in the real estate market because it correlates with how long homes spend on the market and what they sell for. But even before the pandemic, the months’ supply of homes was on a downward trajectory dating back at least a decade: the national months’ supply of homes topped four in just one month over the last six years. The months’ supply of homes, which measures how long it would take the current supply of homes to sell at the current sales pace, fell by more than 46% from May 2019 to May 2022. The pandemic-era real estate market sent the supply of homes on the market to all-time lows over the last two years. The red-hot market of the last two years merely put this reality in sharper relief. with an insufficient housing stock available for would-be homebuyers. Coupled with a lack of supply, these demographic forces have left the U.S. Today, America’s largest generation, the Millennials, are at their peak homebuying age, and America’s second-largest generation, the Baby Boomers, are increasingly choosing to age in place rather than downsize their homes. The downturn had a major consequence for the residential housing market, as the number of new privately-owned housing starts fell by more than 35% from the 2000s to the 2010s. Thousands of construction firms closed or merged, the industry lost more than 2 million jobs, and the volume and value of construction projects fell off significantly. The bursting of the housing bubble in the mid-2000s and the ensuing Great Recession ravaged the construction industry during the 2010s. Housing starts have been trending upward since the spring of 2020, but home builders must also make up for lower levels of activity over the last decade.
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