The housing market's lock-in effect continues to ease

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In December, we published a data-packed article for ResiClub PRO members, where we asserted: "The latest data suggests that the peak lock-in effect is behind us."

Fast-forward to today, and the evidence is even stronger.

On Tuesday, we received data from Realtor.com for February 2024, indicating a measurement of 339,370 new homes for sale last month. This represents an +11% increase compared to February 2023, when there were 304,868 new listings. However, it's important to note that this figure is still -17% below the levels seen in February 2019, when there were 409,934 new listings.

In simple terms, while the lock-in effect is easing, it hasn't completely dissipated.

February new listings* total, according to Realtor.com:

February 2017: 437,752

February 2018: 433,622

February 2019: 409,934

February 2020: 413,564

February 2021: 380,252

February 2022: 368,444

February 2023: 304,868

February 2024: 339,370

The reason that new listings still remain suppressed boils down to “switching costs.” Spiked mortgage rates have made the prospect of trading in a lower monthly payment/lower mortgage rate for a substantially higher one a daunting financial challenge. This financial burden, coupled with the psychological aspects of the change, has contributed to a reluctance among homeowners to list their properties for sale.

However, as time goes on, life events such as expanding families or other significant changes can act as catalysts in reducing so-called switching costs. Some people will simply get tired of waiting for mortgage rates to fall, and will move on with their lives.

Big picture for new listings: The lock-in effect is easing a bit as the initial mortgage rate shock recedes in the rearview mirror, and as some homeowners come to terms with the fact that their life circumstances have changed and that sub 4% mortgage rates aren’t returning anytime soon.

When ResiClub discusses the “lock-in effect,” we're referring to the phenomenon where strained affordability and spiked mortgage rates have suppressed new listings (as seen in the two charts above).

When assessing current home pricing trends, we believe it's more prudent to monitor active listings and months of supply. If active listings start to increase as homes remain on the market for longer periods, it may indicate potential future pricing weakness. Conversely, a rapid decline in active listings could suggest a market that is heating up.

The fact that there isn’t an excessive amount of existing inventory on the national market is a core reason why spiked mortgage rates and strained affordability haven't translated into more regional home price corrections.

In February 2024, there were 664,716 active listings on Realtor.com. That’s +15% above February 2023 (579,264 active listings), and +91% above housing boom times in February 2022 (346,511 active listings) when many homes were selling so fast they weren’t even being registered as inventory.

But it’s still well below pre-pandemic levels: Active listings in February 2024 were -40% below February 2019 levels when there were 1,102,660 U.S. homes for sale.

February inventory/active listings** total, according to Realtor.com:

February 2017: 1,151,120

February 2018: 1,045,153

February 2019: 1,102,660

February 2020: 928,343

February 2021: 464,919

February 2022: 346,511

February 2023: 579,264

February 2024: 664,716

Big picture for active listings: While active listing levels are rising year-over-year, national inventory levels still remain well below pre-pandemic levels. This suggests we're witnessing more of a balancing housing market than a crashing one.

At a regional level, inventory trends vary greatly. Some markets are so tight, like Hartford, that home price growth remains elevated, while other pockets are experiencing significant inventory jumps, indicating potential future pricing softness.

On Wednesday, ResiClub PRO members will receive an article showcasing inventory trends down to the local level. It will include several interactive maps and updated access to the Lance Lambert Inventory Tracker, covering over 800 metros and 3,000 counties.

* New listings = “The count of new listings added to the market within the specified geography. The new listing count represents a typical week’s worth of new listings in a given month. The new listing count can be multiplied by the number of weeks in a month to produce a monthly new listing count” according to Realtor.com.

** Active listings (i.e. what I often call “inventory”) = “The count of active listings within the specified geography during the specified month. The active listing count tracks the number of for sale properties on the market, excluding pending listings where a pending status is available. This is a snapshot measure of how many active listings can be expected on any given day of the specified month” according to Realtor.com.