Temperatures are rising, the sun is setting later, and the daffodils are starting to peek their green leaves out of the earth — spring is coming. And just like the bears who are starting to wake up from their long winter naps, homebuyers and sellers are coming out of hibernation… or at least they normally do.

Nationwide, pre-pandemic the first week of February typically marks the lowest point for housing inventory during the year, as sellers return to the market in time for spring, but since the onset of the pandemic this predictable trend has been thrown out the window.

“The pandemic definitely changed the real estate market,” Todd Alperin, a Better Homes and Gardens Real Estate The Masiello Group agent based in Southern New Hampshire, said. “Coming into the pandemic we had a low inventory environment, and the pandemic intensified the inventory shortage, and it has really created major issues for the real estate market.”

According to Mike Simonsen, the president of Altos Research, to see housing inventory fall throughout February, as it has this year, is pretty unusual.

“Prior to the COVID-19 pandemic, it was normal for inventory to rise in February as the spring home sellers began listing their homes and buyers weren’t yet out in force,” Simonsen wrote in his February 13 housing market update. “But in 2020 through 2022, buyers came out quickly after the new year and inventory didn’t hit bottom until much later in the spring.”

Housing inventory has been falling nationally since late October, after hitting a two year high of a 7-day average of 577,172 homes on the market according to Altos. As of February 24, 2023, the 7-day average for inventory was 429,757 and close observers don’t expect this to change much in the upcoming weeks.

“Inventory is falling pretty quickly now, which is really a surprise,” Simonsen said. “My expectation is that if rates stay higher in the sixes or sevens for a few years, over that time, we will get a bit more inventory each year and we’ll work our way back to normal.”

HousingWire’s lead analyst Logan Mohtashami added: “For almost 10 years now inventory has slowly been falling lower and lower because people get a house with a fixed rate mortgage and over time their income typically increases, but their shelter cost remains the same, so it becomes a really good deal for them. Inventory is higher than it was last year, but we are working from all-time lows. The way that inventory will grow is if mortgage rates stay high enough for long enough and homes take longer to sell.”

What happened to ‘normal’?

In late fall of 2022, as buyers grappled with mortgage rates doubling in a matter of months and sellers adjusted to the shifting market, many agents felt like the market was on the precipice of returning to “normal.”

“My team and I are seeing more ‘normal activity’ in the market,” Kent Redding, an Austin, Texas-based Berkshire Hathaway Home Services agent, told RealTrends in November.

While Redding says market conditions have continued to remain well below the frenetic pace of the 2021 and early-2022 housing market, he said they have not returned to the normal he was anticipating. 

“We are seeing some modest increases, but the pressure is still there for the buyers,” Redding said. “Personally, in my business, I am decently busy getting sellers ready to go to market in March and April and it is easier because sellers are beginning to understand that what we had before was abnormal and now things are starting to resemble more normal trends for price increases and days on market.”

Redding noted that while he does expect inventory to pick up come March and April, he expects there to be roughly 8,500 homes on the market, which is still below the October 2022 peak of roughly 10,000 homes.

Up in Southern New Hampshire, Alperin is expecting similar trends.

“I don’t think we are going to see a huge bump in inventory any time soon, but I think we will see some additional homes come on the market over the next few weeks, as would typically happen in spring,” Alperin said.

The timing of the uptick in housing inventory feels like it is following pre-pandemic normal seasonal trends, Alperin said. But so far, the size of the uptick is nowhere near what it normally would be, a trend he expects to continue throughout the rest of the year.

“I don’t see a big push of inventory coming on the market because many potential sellers are having second thoughts about selling,” Alperin said. “So many people went and refinanced when the mortgage rates were in the 2%-3% range and they don’t want to lose that lower interest rate by moving to another property. And then the low inventory is keeping other sellers on the sidelines because they are nervous about where they are going to go if they sell.”

In addition to the typically timed arrival of the spring selling season, Alperin said other aspects of the Southern New Hampshire housing market have also returned to more normal conditions, including a slowdown in home price appreciation and fewer bidding wars.

“It depends on the community and the price range, but we are not seeing things go dramatically over asking when there is a bidding war anymore,” he said. “It is maybe $10,000 or $15,000 at most.”

But Megan Fox, a Compass agent based in Bergen County, New Jersey, said that isn’t quite the case in her market.

“We are still seeing multiple offers and open houses are canceled all the time because we are getting multiple offers within the first few days,” Fox said. “I almost feel like right now we have even more of a situation on our hands than we did in 2021 and early 2022 because there is no inventory and we still have a lot of buyers relative to the amount of inventory in our area. Everyone is fighting over the same handful of homes.”

Earlier in February, Fox said a home went on the market in her metro area and received 18 offers within days of listing and ended up going for $150,000 over asking.

“You are still seeing those really big jumps above asking,” Fox said.

Her experience is backed up by the data. In January, 41% of resale listings in the Northeast received multiple bids, according to John Burns Real Estate Consulting.

According to data from Altos Research, the 90-day average median list price in Bergen County has been trending up since early February of 2022, rising from $639,000 to $799,000 as of February 24, 2023. Meanwhile, inventory has steadily declined since September 2022 falling from a 90-day average of 1414 homes on the market to 777 homes on the market as of February 24, 2023.

Despite the challenging conditions, Fox is optimistic things will get at least marginally better come March and April.

“Pre-pandemic the spring market was our largest market and this year I definitely think we are going to see a stronger market come spring,” she said. “I do see some people preparing to get their homes on the market now and we are really encouraging all our prospective sellers that now is still a good time to list.”

Down in Miami, Mike Martirena, a local Compass agent, is also dealing with very low inventory, but he has not seen bidding wars, especially ones like Fox described, since the height of the market in 2021 and early 2022.

“Prices are remaining pretty stable,” he said. “They have come down maybe a percent or two from the height, but I expect them to remain pretty stable this year.”

How do we get back to ‘normal’?

While not all metros are experiencing massive bidding wars, driving home prices even higher anymore, home prices are still elevated and the lack of supply is hurting agents.

“Inventory is really holding the market back from returning to a more pre-pandemic normal,” Fox said.

Coupled with a slower than expected disinflation rate, some agents are concerned this could potentially mean more aggressive action from the Federal Reserve, but Mohtashami feels the Fed should take a different course of action.

“The Fed talked about a housing reset, but you can’t run monetary policy based solely off of home prices,” Mohtashami said. “The Federal Reserve said they wanted to get rates to a certain level and just let it stick and they should just stick with that because if the economy starts to get weaker, bond yield will get ahead of them. I think the Federal Reserve just wants to get a few more rate hikes in and just stop and see what happens. They shouldn’t panic on any positive or negative move either way, they should just hold their ground and see when the labor market breaks. But the Fed rate hike story is coming to an end.”

Back in Southern New Hampshire, Alperin is keeping a close eye on the Fed and their interest rate plans.

“The Fed has been super aggressive in increasing interest rates,” Alperin said. “We are seeing interest rates now that have basically doubled in less than 12 months, but we haven’t had the supply of houses come back. With such little inventory, I just think something needs to change in order to get the balance back.”