The current state of the real estate market continues to be a topic of heated debate among industry professionals, investors, and potential homebuyers. While sensationalist headlines suggest dramatic market shifts, a deeper analysis reveals a more nuanced picture that varies significantly across different regions and price points.
One of the most critical metrics to understand is housing inventory. National data indicates we’re currently at around four months of inventory, whereas the long-term historical average sits at approximately six months. This means we’re still technically in a balanced market leaning toward a seller’s market, not the buyer’s market many headlines suggest. This discrepancy highlights how easily data can be misrepresented or misinterpreted in real estate reporting. As one expert points out, “It’s really easy to sensationalize,” particularly in an industry built on sales where narratives can quickly become echo chambers.
The concept of absorption rate provides a more accurate picture of market conditions than simply looking at days on market. Absorption rate measures how long it would take to sell all current inventory at the present sales pace if no new listings were added. When this rate exceeds six months, you enter a true buyer’s market where prices tend to decline. Currently, most markets nationally are hovering around four to five months of inventory – firmly in balanced market territory but approaching buyer’s market conditions.
The “lock-in effect” created by historically low interest rates continues to impact housing inventory, with approximately 80% of all current mortgages in the United States locked in under 5%. This has created reluctance among homeowners to sell and take on new mortgages at today’s higher rates. However, life events like divorces, deaths, job relocations, and growing families ensure a steady, if slower, flow of homes onto the market. Economic pressures and the realization that rates may remain elevated for the foreseeable future are also gradually eroding this lock-in effect.
Where can buyers find value in today’s market? Several pockets of opportunity exist. High-end homes (particularly those in the $900,000 to $1 million range) often offer substantial negotiating power for buyers. Custom building presents another value opportunity, with builders more willing to reduce fees for guaranteed sales rather than speculative builds. Fixer-uppers continue to provide value, especially when following the classic real estate principle of buying “the worst house in the best neighborhood.”
The outskirts of metropolitan areas represent perhaps the most overlooked value opportunity in the current market. Properties that were in high demand during the pandemic – those with acreage just outside city limits – are now sitting on the market longer. While these properties may be 15-20 minutes from urban amenities, they offer significantly more land and often better price points than their in-town counterparts.
For investors, it’s important to distinguish between nominal and real returns. While housing prices may continue to increase nominally at 1-2% annually, if inflation runs at 3-4%, real estate would be losing value in real terms. This doesn’t necessarily mean avoiding real estate altogether, but it does suggest being more selective and looking for specific dislocations or inefficiencies in local markets rather than expecting broad appreciation across all properties. For primary residences, however, the stability and lifestyle benefits often outweigh pure investment considerations.