These High-Inventory Markets Could “Swing Up” in the Next Cycle

Dave:
Inventory, the all important metric that we are always tracking and always watching isn’t anymore moving in just one direction nationwide. In some markets, listings are rebuilding and buyers are having more leverage. While in other markets, inventory is still tight and in some, it’s actually going down. And that regional split is shaping everything, affordability, negotiating power, and where investors can still find opportunity. I’m Dave Meyer, and today I am joined by Lance Lambert to break down the latest regional inventory trends, why they’re happening, what outcomes they tend to produce, and what it means for the national housing market as we look ahead. We’ll talk about the drivers, the markets to watch, how this shows up in prices and sales, and Lance’s predictions for the next phase of this cycle. This is On The Market. Let’s get into it. Lance, welcome back to On the Market. Thanks for joining us again.

Lance:
Housing, housing, housing, always so much going on, and thank you for having me again.

Dave:
Of course. Man, you’ve been on a lot of times, but I think maybe just for anyone who’s new here, maybe just give us a little background, who you are and what you do.

Lance:
Yeah. Longtime financial and data journalist had worked at places like Bloombergrealtor.com. And then I was the real estate editor for four years over at Fortune Magazine before leaving to start Resi Club. And Resi Club is a news and research outlet that is focused on the US housing market. So a lot of our audience and clients are home builders, developers, single family investors and operators, and then a lot of mortgage and lenders who lend to single family or to lend to home building. And really just trying to figure out at any given time what is going on in a macro level throughout the different elements of housing, and then also distilling that down to a local level. Because you know better than probably anybody, just how much nuance is out in the market. And so trying to figure out what that nuance is at any given time and then why.

Dave:
Well, that’s what we’re going to do today. We’re going to hopefully try and get into some of that nuance. So we have this affordability issue, Lance. It’s been going on for a while. It does seem like the market’s slowing down more though, right? Even the last couple years, we’ve had modest appreciation. I think we’re probably heading for national price declines this year. Are we in a relatively slow, declining, flat, but stable market, or is there risk that it could change direction quickly here?

Lance:
Well, the thing that I would say is already where we are, we are in the bottom 25th percentile, historically speaking, for weakest housing markets. So we are already in a weak soft housing market, just not the GFC level period. We’re more in a period that’s similar to 1990 to 92, that early 90s window. But I think with housing, one of the things that’s interesting is just its effect to the overall economy. We had a blowoff of economic activity from the housing market that’s been gone since really middle of 2022. And it all happened very suddenly when you lost just that chunk of the resale transactions. But what’s interesting is that the builders in this period, they’ve had to do so much margin compression to maintain volume that if the housing market were to weak substantially more than it already has, in particular in those softest markets right now, which are down in the Sunbelt, those core home building markets, if we were to go further beyond what we’ve already seen and then builders were to really pull back activity levels, that’s going to hit the whole economy.
We’ve lost a part of the cyclical element of housing. We’ve gone down to the historically low levels of resale transactions, but home building and residential construction employment has really stayed resilient. Now, obviously you’ve seen the rollover and completions for multifamily, but overall home building has not seen a really big pullback in overall employment and activity so far. But if we were to push any further than the point we’ve already gotten to, we’re going to start to take away that economic impact and activity from residential construction to a level that could potentially be where you would historically think of as a recession.

Dave:
And Lance, what could cause that? You’re saying we’re okay right now, but we see any further leg down in terms of activity, it could expel problems. What could be the catalyst for that further decline?

Lance:
At any given time, you can always have downside risk in an economy from one area or another. And so I think that home prices in general were their most vulnerable right in 2022 when they were the most overvalued. Now actually four years out, we’ve seen a lot of the overvaluation actually come out of housing. So Austin was overvalued at that time by around 50 something percent. Now it’s around like 10%-ish, right? It’s kind of in a normalish area.

Dave:
How are you comparing that? 10%, what do you mean? Just compared to historical averages or incomes? What are you comparing it to?

Lance:
Yeah. So I like to use Moody’s Analytics overevaluation study. It’s something that Mark’s been sending me for about five years. Mark Zandy, their chief economy. And if you look at the Q2 2022 reading that Mark’s team put out, the most overvalued markets at the time were Austin, Puna Gorda, Cape Coral. And then if you fast forward to today, the three markets a cycle that have seen the most give up and price are Austin, Puna Gordon. The analysis was pretty good. And now there are outliers like San Francisco didn’t really have the overvaluation problem and they’ve seen give up in price and neither is New Orleans. But essentially what a valuation study is doing is saying that home prices relative to incomes in your market would historically be X amount today. And then it takes whatever home prices are actually, and the delta between the two is either the overvaluation or the undervaluation.
Got it. So Austin, during the pandemic housing boom, still home prices rip up 70% in just 18 months. And so very quickly, relative to incomes historically in Austin, they got overvalued by about 55% ish. And then nationally we were about 25%. Austin now, I’d have to look at the data. It’s much closer to like, maybe it’s 20, 15, 10, something in there. And then nationally we’ve gone from around 25% overvalued to actually it’s a single digit amount. It’s much, much closer historically line. So home prices themselves had the most downside risk, in my opinion, back in Q2, 2022. And now that we’re four years through this recalibration period, the risk is actually lower in my opinion. There are still markets of risk, right? And actually some of the Midwestern markets and Northeastern that have been more resilient the past few years have diverged a little more from their historic fundamentals lately.
Although the thing that they don’t have is supply elasticity, right? So when you have an affordability shock, a market like an Austin, Tampa, they have that multifamily supply, the new construction supply. Builders are essentially for sellers in a way, right? They’re going to move their volume. And so they’ll do the affordability adjustments that then pulls buyers over from the resale and existing market to new construction, pushes up resale existing market inventory a little more. Okay. Now I’m going to answer your question. I’m coming back. And so your question is, what today could be the risk or catalyst, right? Yeah. I think really you just have to … And it could be shortsighted where in six, 12 months, we’re not even talking about this thing, but you just have to … There is some risk to it, which is energy, right? Energy is a very elastic cost to an economy.
And so if you did have a scenario where things got out of control in the Middle East and we saw the price of oil per barrel spike well beyond what we’re currently expecting, that’s going to create an economic shock, right? Yeah. And so it’s going to create an economic shock. Already, when you look at housing, the weakest component of housing is the bottom of the market right now. Initially, when the rate shock occurred, actually the bottom of the market was kind of resilient, right? A lot of them were trying to get in first time buyers. You had some of the investors still, not as much today because what’s occurred is the longer we’ve stayed in this higher interest rate environment, the bottom of the market has really felt the squeeze of higher credit card interest rates and that credit card debt delinquencies have went up a lot.
They’re having to pay student loans again, and that’s put distress into a little corner of a market, although more of them are renters when you aggregate where the distress actually is and autos as well in these higher interest rates. And the other factor is that the single family supply that the builders have pushed into the market and also into the multifamily supply, a lot of that has affected the bottom of the market. So there’s a lot of deals on rentals in terms of like, if you want to go rent in Austin or Nashville, some of these cities with more supply. And so what it’s done is it’s pulled some of the entry level buyers away from buying into renting because they’re like, wow, my rent would be X versus my monthly payment to buy would be this. And so some of them have pulled more there.
And as the builders have done more of that entry level supply and the Lennars of the world have done that bigger discounting, that’s kind of created additional softening there. And so if you had oil prices spike up in a scenario where they really get out of hand, that’s going to squeeze the economy. It’s going to create some job losses and it’s probably going to really affect that bottom consumer. And so I think that that would have an impact on housing. And the other factor there is that if it came with an inflationary shock with it, not necessarily going to have the easing to rates that we would think of from a normal recession, that’s some risk to housing.

Dave:
All right. This is great stuff, Lance. Thank you. We do have to take a quick break though. We’ll be right back. Welcome back to On the Market. I’m here with Lance Lambert talking about inventory and migration trends. Let’s get back into it. Well, you’re saying energy. It’s kind of like a ripple effect, right? That oil prices go up, that could create a general economic slowdown, and that translates into higher unemployment, less demand for housing. Maybe there is forced selling or just more motivated selling, and that could push down home prices. I mean, I buy that. That makes sense to me. I’ve said on the show before, I think the big risk to the market comes if we see a significant increase to unemployment. And I don’t mean going from 4.3.4 to five. I don’t think that’s what does it. I think if we get to seven, eight, then you start to get a little bit worried.
Or as you alluded to, some sort of stagflation event where we do see both a slowdown in the labor market and general economic activity at the same time that we see inflation. And we’re recording this April 10th. Today’s not a good day for that. If you’re going to worry about it, today’s been one of the more worriesome days about that. We saw inflation shoot up from 2.4 to 3.3% today. And so I don’t think this is the most likely scenario that there’s a market crash, but I think it’s something personally I recommend keeping an eye on because that to me is where the risk is and it’s not trending in a great direction, at least right now.

Lance:
And one thing I should throw out there too, and that’s kind of why I did the zoomed back out to Q2, 2022, is that anything through this window where you’ve had some more frothiness on housing because of the pandemic housing boom, you had more risk of some type of job loss recession creating downward pressure on home prices. But the further we get away from Q2, 2022, and we go through this recalibration period, the less likely I actually think that a job loss recession would push down national home prices. Really? And if you go through the history of housing, there are many recessions that we’ve had where home prices kept going up. And so I think that the longer you go through this period and you have some of that overvaluation continue to kind of pull back from the market, you have the fundamentals recalibrating and you’ve also had a really long period of existing home sales below normal levels of turnover.
What you could have happen is you could have a recession, not now, but further out that could create a positive momentum for housing because it pushes down the long-term yields and material amount, they shift and that we’ve already seen that overvaluation kind of pulled back from the market. And so at that point, housing could react very different in a job loss recession. And I think the other reason that I kind of called out the oil shock type scenario is that particular type of scenario, that type of job loss recession might not get the relief in the long-term rates because in that scenario, in inflationary shock, the Fed’s kind of concerned about inflation and they are kind of figuring out which side of their mandate to attack.

Dave:
A hundred percent. Yeah. I actually just did a whole show on this. Anyone wants to listen. I released it in early April, basically talking about different types of inflation and why if you have … People often associate with home prices going up during inflationary periods, but if you’re in a supply shock or a supply push inflationary environment, that does not necessarily mean home prices are going to go up. That is different from the demand pull kind of environment that we saw in 2021, printing all this money, that kind of stuff. So that’s a super important thing, but that actually makes sense to me, Lance, that we’re not at the peak of housing anymore is kind of what you’re saying, right? Even though home prices on a nominal basis, non-inflation adjusted, have still gone up a little bit, a lot of the markets that were the worst in terms of overvaluation have adjusted.
And so they’re just less sensitive. They’re not at that peak and there’s probably less risk of panic going on because people are seeing that a little bit.

Lance:
And the longer that we stay in this period where the more cyclical type of housing markets have kind of go through this recalibration, that also creates potentially the upside for those markets. So if you look at net domestic migration, a market like Florida, they saw net domestic migration of 300,000 Americans between summer of 21 and summer of 22. This most recent 12 month period, it was like around 20,000. Now, the thing is, historically, where we are right now for net domestic migration to Florida is on the very low end of the bounds. Same with Texas. Over time, that’s going to swing up. If you wanted me to take bets that I’m certain of, in particular for Texas, we are at a low period for net domestic migration to Texas, and there will be a period when that swings up.

Dave:
Is that like a pull forward, just like pricing? You think we just got a lot of migration and then now it’s sort of the hangover, but we’ll go back to normal.

Lance:
Yes. And that’s also, in some ways, some of my views of international migration as well. Now, there are the political elements of some of the things that Biden administration has done and some of the things the Trump administration has done, but I think that we are in a period of very low levels of international migration. And some of that is because international immigration, some of it that occurred in 21, 22, 23, and into 24, some of that was pulled ahead from 25, 26, 27, 20. And so I think that over time, the international side will swing back up potentially from where it is currently at at its current levels. And the thing with the international migration is actually you haven’t fully seen what has already happened in the real world. So the data lags significantly. So like this March, we got data for 25, but the 25 data is summer of 24 to summer of 25, and we just got it March 26th.
And so that means from the summer of 2020 to summer of 21, we did not get that data till March 2022, which was the end of the pandemic housing boom. So by the time the pandemic housing boom ended, we started to get the official migration data. So migration data, yeah, there’s a significant lag there.

Dave:
You’ve actually done a lot of work recently, Lance, about migration trends. I’m curious if you could shed some light on it for our audience in terms of markets that might still be seeing strong internal migration or markets where there’s risk of declining demand because migration has either slowed or stopped.

Lance:
Yeah. So I will pull up an analysis for you. So in housing with net domestic migration, often when somebody moves from one market to another and they’re an adult, very often there is a housing transaction that comes. Unlike a birth where somebody’s born, they’re not going out immediately and buying a house, right? So when you look at this population change, normally the level of population change is very steady usually. But when you look at international migration and you look at net domestic migration, those are fairly cyclical, in particular, net domestic migration. And so in 03, 04, 05, the country saw a big jump up in net domestic migration into these markets like Arizona, Nevada, Florida, right? And then it pulled way back. And then we had very low levels of state to state migration during the GFC. Then it slowly rebounded through a lot of the 2010s, kind of got to where you would think of as normal levels.
And then we had the pandemic housing boom that had this really large unlock for net domestic migration. And so I’m going to show you here net domestic migration during the pandemic and you can see that dark, dark blue into Idaho, into Utah, into Arizona, Nevada, Florida, into parts of Arkansas, Tennessee, the Carolinas, Florida, and even up into like Maine and New Hampshire and Vermont.

Dave:
Lance, let me just stop you for a second, just so everyone knows if you’re watching this on YouTube, you’ll see it. But Lance is pulling up a map for us and showing us literally county by county migration. He just was talking about 2022 and as he was saying, the blue is where there was very strong net migration. That was all the states you just mentioned, Southeast, a lot of the Sunbelt, Idaho, some parts of New England, and then carry on netland. Sorry to interrupt.

Lance:
And then now you fast forward to the most recent 12 month period, you can see that in places like Idaho, Utah, Arizona, Texas, Florida, a lot of these areas are still positive for net domestic migration, but it’s not like it was before.

Dave:
It’s way less.

Lance:
Yeah. Yeah. And if you go through them, you can actually find some of these like Hillsborough County, Florida, where it’s actually seen net domestic migration that’s outward, negative net domestic migration. And so you’ve seen that shift there in the market. And a lot of this is tied to the lock in effect. And so one of the interesting things about the lock in effect is anybody who is affordability locked in where they don’t want to lose their payment to take on a higher payment, that is one lost seller and it’s one lost buyer, but where that lost seller could be and where that lost buyer could be, could be two totally different places. So if you live in Illinois and you were going to sell your house and go move to Florida, but now interest rates are around 6% and you have a 3% rate. A lot of that math that was attracting you to go to Florida, right, seeking some affordability, in particular with state income tax, maybe property tax for you, if you’re going from Illinois, a lot of it’s diluted now because their monthly payment would go up so much more for that higher interest rate.
And so if they aren’t selling their house, that’s one lost seller in Illinois, but it’s one lost buyer in Florida. And we’ve seen that in the market as well. And that’s also played a role in some of the regional bifurcation where you look through some of these Midwestern, Northeastern markets that are at the very low levels of their normal levels of out domestic migration. They were the people going to Florida, Texas, right, Alabama. And now they’re at their lower levels and then you look at the Floridas and the Texas and they’re not gaining as many at the moment because that state to state migration is just affordability constrained at the moment. And so that’s one element of the regional bifurcation. Another element is what we’ve already described, which is some of the overvaluation and the fact that prices overheated in some of these Sunbelt markets.
So they saw a bigger run up in price, which then detached themselves from local fundamentals further and created a greater demand shock once the market and the boom really fizzled out. And then local incomes, they had to rely more on them because there’s less of that domestic migration. And the other factor there, of course, is the fact that they are the supply elastic markets, right? When home prices rip up a lot, investor capital, they’re going to want to deploy. They’re going to want to deploy into multifamily construction, single family construction. They’re going to take on projects and those markets have the entitled land and the ability to push out and build more. And so supply, it takes a little bit to get into the market. And by the time it got into the market, a lot of it, the market had shifted into a more affordability constrained market.
They then had to do the affordability adjustments to meet the market, and then that creates an additional cooling effect onto the resale market. But at the moment, some of those cyclical factors, we’re not seeing as much of it at the moment. We are seeing the bifurcation very much so, but we’re not seeing inventory burst upward as fast in those Sunbelt markets versus everyone else. And actually inventory nationally, we’ve seen a deceleration. We’re only up around 7%. We were up 30% a year ago for inventory. And some markets now, Florida’s one of the very few states in Alaska where inventory is down year over year. And so some of the forward indicators suggest that the intensity of that cyclical cooling period has tampered off a bit. And my clients, I’m not going to name them, but a really big builder in the Jacksonville market, they’ve seen an improvement to their sales this year.
I’m hearing a little bit of stories in Orlando where things are getting a little better there as well. Now, I am still hearing in like some of these Southwest Florida markets in Tampa, still their pockets, still dealing with more of the choppiness, but you’re not seeing what you saw in 2024 into early 2025 when you had that really big burst of softening that was pushing into the market. And since around the middle of 2025, I would say that the burst of softening has led up and we’ve stabilized into what I would call a soft nationally aggregated housing market. And then some of those markets in the Sunbelt, still seeing some pricing give up and weakness.

Dave:
All right, everyone. Lance is dropping some really good knowledge here, but we got to take one more quick break. Stick with us. We’ll be right back. Welcome back to On the Market. Let’s jump back in with Lance Lambert. Well, I feel like this is normal. This is what you would expect, right? The housing market is correcting. Inventory is lower. Sellers are reacting to the lack of buyers, right? So we’re adjusting and reaching some sort of equilibrium instead of the imbalance between buyers and sellers accelerating, right? Because when people say that there’s going to be a crash, usually what they’re saying is there’s going to continuously be more inventory and buyer demand is either going to stay stable or decline, and that’s how you get a crash. But what’s happening in Florida is a perfect example of what happens during a normal correction, which is that buyer demand goes down for all the reasons Lance just mentioned.
But instead of people panicking and selling more and more, fewer people are selling. He just said inventory is down in Florida. I don’t know if you know the new listing data off the top of your head, Lance, but I would imagine it’s either flat or somewhat down if we’re going to have lower inventory.

Lance:
Ish and some of these, yeah. And so a part of it is you’re not seeing a big jump there. You’ve also seen some of the de- listings where some of the sellers are like, “You know what? Markets come down too much on price. I’m going to wait this out a little bit.” You have also seen an increase in accidental landlords though too, in particular more in the weaker markets like a Florida where they’re not getting their price they would want and they don’t necessarily have the distress. And so they are trying out the rental market. Now, if you’re an investor, that’s a data point to watch and important because, and I’m not talking about like at a macro level, I’m talking down to the actual property. If you see a home come on the market for sale and it stays on and it’s not getting bytes and they’ve had several price cuts and then you see it go away and it didn’t sell and then you look at the rental market and you find it over in the rental market and that stays on there well.

Dave:
That’s a target.

Lance:
Yeah.

Dave:
That’s a

Lance:
Target. Someone who

Dave:
Might want to sell.

Lance:
Yes. So you start seeing those go from unsuccessful listing, they jump on the rental market, and then if they jump back on the for sale market, oh, you really have probably a seller who’s ready to throw it in.

Dave:
Well, Lance, this has been fascinating. Thank you so much for educating us on what’s going on here. Any other thing you’re covering that you think our audience of investors should know as we head into what might be a slow spring season here?

Lance:
So one of the positives that housing has had is that the spread between the 10-year treasury yield and the 30-year fixed mortgage rate, very quickly after the Fed started hiking rates and they stopped buying mortgage-backed securities, we saw that spread really widen, right? And so mortgage rates back in 2022 into early 23, they went up a lot more than other yields in the economy. And so that spread really widened, right? And the Fed wasn’t out there buying mortgage-backed securities, there wasn’t an immediate buyer who stepped in to replace them. Banks also pulled back on their mortgage-backed securities. And so you were waiting for another buyer to kind of come into the market to replace them. Well, over the past year and a half, we have seen considerable improvement in the spread between the 30-year fixed mortgage rate and the 10-year treasury yield. And earlier this year, after also Fannie Mae and Freddie Mac said they were going to increase their retained holdings and mortgage-backed securities by 200 billion additional, we saw the spread get closer to normal levels, actually into the historically normal bounds.
Now, since then, we’ve kind of went back up a little bit. So that’s the positive that the spread has come down and that’s helped mortgage rates fall more than other yields in the economy. But here’s the bad news. That lever has gone for us. So the easiest gains down on mortgage rates have occurred. Now the ones from here are going to be the tougher ones. These are almost like the ones that you might need the economy to actually weaken more.

Dave:
Yeah. Or inflation to go down significantly.

Lance:
Yes. So I wish I had better news on mortgage rates, but-

Dave:
Me

Lance:
Too.

Dave:
But we got to be realistic. That’s the whole point of the show is to help people identify what’s really happening. But like you said, this situation comes with more motivated sellers. It comes with some opportunities. You just got to figure out where to find it.

Lance:
Well, thank you for having me. Housing, housing, housing. Anybody who wants to follow my work, you could go to resiClubanalytics.com, put it in your email, get into my free email list. I send out a few articles per week, and then also follow me on Twitter @newslandbert or LinkedIn, Lance Lambert.

Dave:
Awesome. Thanks, Lance. We appreciate it. And thank you all so much for listening to this episode of On The Market. We’ll see you all next time.