Several conditions must unfold for a housing recovery to occur.

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

Of course, mortgage rates would need to cool off, which seems promising given the recent declines. The average 30-year fixed mortgage rate has been below 7% since the first week of June and has largely trended down, landing at 6.46% in the week ending August 22.

However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.

“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.

He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.

Housing Inventory Forecast: When will there be sufficient supply to reduce prices?

Despite more resale homes entering the market, the inventory shortage remains severe and likely will for some time, thanks to multiple headwinds.

For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for the remainder of this year.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

New home construction has provided some relief, with inventory at its highest since early 2008. However, more than this welcome supply is needed to fill the inventory gap.

Still, while inventory is some 33% lower than pre-pandemic averages, there is a bright spot in the data—current inventory levels sit at their smallest deficit since fall 2020, according to Zillow analysis. Inventory may improve further if home prices and mortgage rates stay high.

—From Robin Rothstein, Forbes Advisor

THOUGHT FOR THE DAY: It’s not about being happy all the time or being sure of all your choices.It’s about knowing life is precious even when it’s tough.

(Toper Kearby)