Intense housing market conditions relax (a bit) in May

As recent indicators hinted at a cooling marketplace, it appears at least one segment of housing reached an inflection point in May.

Inventory of for-sale homes grew 3.9% from April, marking the first monthly increase since July 2020 and only the fifth since May 2019, according to Zillow. Supply still remains down 31.2% annually, but that rate improved from 32.8% the month prior.

The inventory rebound also dovetails with Fannie Mae’s borrower purchase sentiment bottoming out to the lowest point in its survey history and mortgage origination volume slowing to a 13-month low, according to Black Knight. While some predicted that more inventory would hit the market in June, rapidly loosening pandemic restrictions ushered it in earlier.

“A steady increase in new listings appears to have finally started turning the tides, bringing a long-anticipated turn toward more choices for buyers," Zillow Economist Treh Manhertz said in the report. "Builders are rushing to churn out new homes, while widespread vaccinations and improved confidence in the economy should help current owners feel more comfortable listing their homes for sale."

May had a seasonally adjusted annual rate of 1.572 million housing starts, rises of 3.6% month-over-month and 50.3% year-over-year, based on U.S. Census Bureau data.

Inventory fell in only six of the top 50 housing markets, with the largest declines coming in Florida cities. In May from April, for-sale supply dropped 6.4% in Miami, 3.4% in Orlando and 2% in Tampa. Meanwhile, Milwaukee led the country with a 22.5% monthly boost, followed by gains of 15.8% in Austin, Texas, and 13.7% in Seattle.

This isn’t to say the market isn’t still scalding hot. Home price growth surged 13.2% annually and 1.7% monthly — the highest levels since Zillow started tracking in 1996. Additionally, the average listing only lasted six days before going under contract compared to seven days in April and the May average was as low as three days in Cincinnati, Columbus, Ohio, and Kansas City, Mo.

Although homes got scooped up at breakneck speeds, diminished affordability cut down on home buyer competition in May and helped alleviate the supply crunch.

Bidding wars occurred on 70.4% of listings, falling from April’s all-time high revised rate of 73.6% while still standing above May 2020’s 52.7%, according to Redfin. It represents the 13th straight month where over half of the listings on the market faced multiple bids.

Among the 50 largest metro areas, Spokane, Wash., saw the highest competition in May with 86.7% of properties undergoing bidding wars. Raleigh, N.C., came next with an 84.5% rate, followed by 81.8% in Tucson, Ariz., and 81.5% in Salt Lake City.

Competition in Jacksonville, Fla., dwindled again as bidding wars fell to 34.4% from 46.2%. Cleveland trailed at 51.6%, as New York’s 53.1% and Miami’s 57.2% were the remainder of cities below 60%.

"After months of surging prices and low inventory, some house hunters are moving to the sidelines — either because they're priced out or burned out," Redfin Chief Economist Daryl Fairweather said in a separate report. "Americans are spending more of their money on things like travel and dining out now that pandemic restrictions are being lifted."