U.S. Housing Demand Cools in December as Inventory Shortage Intensifies

A slight decline in homebuyer demand during December 2023 signals a return to pre-pandemic market patterns, with a persistent shortage of homes for sale continuing to prop up prices and create competitive conditions for buyers. The Redfin Housing Demand Index, a measure of homebuying activity, fell 0.2% year-over-year to a level of 69. This small drop, which followed a significant increase in November, indicates that buyer demand has normalized to levels last seen in late 2014. The data underscores a market defined by a critical lack of supply, which is preventing sales growth from continuing and keeping home prices elevated.

What Did the Key Housing Metrics Show in December?

The slowdown was evident across several key indicators tracked by Redfin in 15 major metropolitan areas. The number of customers requesting home tours increased by 19.6% year-over-year, a noticeable deceleration from November’s 28.8% growth rate. More significantly, the growth in the number of customers writing purchase offers fell to 3.7%, down from 7.7% in November. While a seasonal slowdown is expected during the holidays, the extent of this deceleration was more pronounced than in previous years. Redfin's chief economist, Nela Richardson, noted, “This was a steeper decline than we saw last year... What’s important for people to know is that demand is still there, it’s just not at the level of growth that we’re used to seeing.”

How Did Low Inventory Impact the Market?

The fundamental issue restraining the market is a severe shortage of properties for sale. The total number of homes for sale fell by 6.3% in December, marking the eighth consecutive month of year-over-year inventory declines. New listings added to the market increased by just 1.5%, the smallest annual gain in over a year. This lack of supply contributed to the market's relative strength in two key ways: it kept upward pressure on prices and led to faster sales. The median home price held onto strong gains, rising 6.2% compared to December 2022. A typical home stayed on the market for just 29 days, down significantly from 37 days a year earlier.

• Year-over-Year Change in Key Metrics (December 2023) | Metric | Change | | :--- | :--- | | Housing Demand Index | -0.2% | | Customers Requesting Tours | +19.6% | | Customers Writing Offers | +3.7% | | New Listings | +1.5% | | Total Homes for Sale | -6.3% | | Median Sale Price | +6.2% |

What is the Market Outlook for Early 2024?

The beginning of 2024 did not bring the needed surge in new listings. Agents reported that the inventory shortage was creating frustration among buyers, with few attractive or reasonably priced options available. This dynamic can lead to a standoff, where buyers are unwilling to overpay and sellers are hesitant to lower their price expectations. External factors like severe winter weather further suppressed market activity by preventing house hunters from touring homes. Without a meaningful inventory pickup, the market faces challenges for sustainable sales growth and price stabilization.

For buyers and sellers navigating this tight market, the key takeaways are:

• Buyers should be prepared for continued competition for well-priced homes and should have their financing pre-approved in advance.
• Sellers still hold an advantage in most markets, but pricing a home correctly from the start is critical to attract serious offers in a climate where buyers are becoming more sensitive to value.