Home listing trends point to slow start to spring buying season

Limited availability of for-sale homes to start 2023 has created concerns among aspiring home buyers as spring begins, according to two new housing research reports.

A little under 830,000 properties were on the market at some point in February, economists at Zillow said in its monthly housing report. The number is the second lowest figure since the online real estate brokerage began compiling the data in 2018, 17% higher than the total of 707,000 one year ago but 43% below what Zillow considers pre-pandemic norms. 

Although overall inventory was up from February 2022, the number of newly listed properties coming to market actually came in 22.2% lower, showing the extent of sluggishness in the market. Last month's inflow of new listings also stood 34.1% below its level from prepandemic February 2020. 

The latest report marks a slight change in sentiment compared to last month, as the housing market started the year with an upturn in sales after a steady drop in rates. 

But changes in the interest rate outlook were the reason behind much of the slowdown in the housing market, which is now leaving potential buyers disappointed, Zillow said.

"Buyers are disappointed in their options. Homeowners aren't giving up their current house and low monthly payments to join a tight, expensive market," Zillow Chief Economist Skylar Olsen said in a press release..

The dwindling supply of new listings to start this year lengthened a cooling pattern that started in the second half of 2022. Rather than growing in January and February when selling activity usually picks up, the number of choices shrank.

When homes appear on the market, though, they are also selling more quickly than they were a few years ago. The median period of time a listing moved from new to pending status came in at 17 days, compared to 22 in 2020. But in the still-hot market of one year ago, homes sold even faster at seven days.

"We know there are a lot of motivated buyers looking for homes. When we see mortgage rates fall, sales pick up," Olsen said.

Markets seeing the largest year-over-year drop in new listings were concentrated on the West Coast, with San Jose, California, at 47%, followed by Portland, Oregon, at 46%. Seattle and Sacramento, California, followed with declines of 45% and 44%, respectively.

Researchers at closing solutions provider First American Financial reported similar findings in newly released data as well. "There are early signs that the spring home-buying season is off to a slow start," First American Chief Economist Mark Fleming said, noting that purchase-mortgage applications in February came in 30% lower than the same month in 2018 and 2019.

The decline comes even as First American's potential home sales model, a measure of economic factors showing the general health of the purchase market, increased for the fourth month in a row, indicative of improving overall conditions.

But potential buyers are discovering few existing homes available, according to Fleming. "You can't buy what's not for sale."

Compared to a year ago, the current market potential for existing-home sales decreased 11.4% to an annual seasonally adjusted pace of 5.47 million,, though, but was up 2.6% from January. 

Home buyers may have more luck in the new-home market, Fleming said. "New home inventory as a share of total home inventory has increased rapidly since 2020, because homebuilders have built more homes and the supply of existing homes for sale has contracted."

Newly constructed properties made up 27% of total for-sale inventory in January, compared to an average of 11% between 2000 and early 2020.

"Builders are incentivized to move inventory as quickly as possible and therefore can be more flexible in a higher rate environment," Fleming said.   

In March, 31% of builders acknowledged they had reduced prices this month, while 58% were providing some other type of incentive, such as buydowns, according to a monthly survey conducted by the National Association of Home Builders and Wells Fargo.