One of the most telling indicators of housing market health is inventory. We all know that a careful balance between supply and demand determines the strength of the real estate market. But the housing supply seesaw has been one-sided for a long time…high demand, low supply!

As we face economic uncertainty and upheaval, we wonder how the housing market will respond. Make no mistake—countless factors influence what the market does. Some are easy to quantify and analyze, while others are more up in the air. But regardless, inventory is one of the most critical factors impacting real estate.

Further Reading: What Actually Drives the Real Estate Market?

Before discussing supply specifics today, let’s briefly recap what led to this point.

A Summary of the Post-Pandemic Housing Market

The U.S. housing inventory shifted significantly after the COVID-19 pandemic. Here’s the rundown:

First: Initial Pandemic Shock (2020)

• Listings dropped sharply: Many sellers pulled homes off the market due to uncertainty and health concerns, diminishing existing inventory.
• Buyers surged: Record-low mortgage rates (below 3%) and the rise of remote work created a homebuying frenzy, especially in suburban and rural areas in the Sunbelt.

Second: Inventory Collapse (2020–2022)

• Historically low supply: By 2021, housing inventory hit record lows. Months of supply in many markets dropped below 2 months (for reference, a balanced market is ~6 months).
• Building slowdown: Homebuilders paused or slowed new projects during early COVID uncertainty and supply chain disruptions.
• Investor competition: Institutional and individual investors aggressively bought homes, further tightening inventory.

Result: Frenzied demand pushed year-over-year price growth to record highs—peaking at 19.1% in July 2021.

Third: Mortgage Rate Lock-In Effect (2022–2024)

• Rates rose sharply: The Federal Reserve raised interest rates in 2022–2023 to combat inflation. Mortgage rates shot up to 7–8%.
• Homeowners stayed put: Most owners had ultra-low mortgage rates from the pandemic period. They didn’t want to risk losing their low monthly payments, so owners that would otherwise sell chose to hold.

Result: “Golden handcuffs” effect — owners held onto their homes, limiting resale inventory.

Fourth: Current Situation (2024–2025)

• Inventory remains constrained: Though listings have modestly improved, inventory is still well below pre-pandemic norms. New construction helps, but not enough: Builders have ramped up activity, especially in the South and West, but labor and material costs plus zoning constraints slow progress.
• Affordability crisis: Low supply and high mortgage rates have elevated prices, making it hard for first-time buyers.

Result: A stubborn real estate market seemingly stalled in the “expansion” cycle. Supply challenges largely dampened efforts to fight inflation.

In Summary…

The U.S. housing inventory is still low by historical standards due to:

• Pandemic-era supply shocks
• Demand spikes fueled by remote work and low rates
• A lingering lock-in effect from low mortgage rates

Additionally, we’ll soon see how tariffs impact homebuilding efforts and associated costs. 

So…What’s Inventory Like in 2025?

There’s good news for investors hoping for a more balanced market. Not only are we seeing increased inventory (+27.6% between February 2024 and February 2025), but price growth has slowed to a more reasonable level (between +4-5% YoY). 
With that said, we’re still behind pre-pandemic inventory by 23.1% (February 2019). Between 2024 and 2025, inventory has increased in all but one state (North Dakota).
For reference, here’s how housing inventory has increased in states where REI Nation operates:

• Tennessee – +35%
• Texas – +25%
• Arkansas – +24%
• Missouri – +24%
• Oklahoma – +29%
• Alabama – +27%

Additionally, Tennessee and Texas are back above pre-pandemic inventory levels (by 2% and 15% respectively).

What does this mean, though? Remember, Sunbelt markets like ours experienced (and continue to experience) elevated housing demand for various reasons, including climate preferences and a more affordable cost of living and housing. 

Though the pandemic pushed prices up, increasing inventory should alleviate some of the cost pressures buyers and investors have faced due to interest rates and persistent demand. Of course, there’s also a “wait and see” element at play due to economic and political factors beyond the housing market.

As investors move forward, be mindful that you choose markets demonstrating signs of long-term stability—robust fundamentals that will allow you to buy and hold without fear of the future.

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