Improved inventory, affordability fuels strongest Oct. housing market in 3 years: Zillow

Zillow says October was the strongest in three years as inventory recovers from record lows—total inventory is up nearly 13% year‑over‑year, the prepandemic supply shortfall has narrowed to about 17% (from 51% in Feb. 2022), new listings and pending sales rose 5% y/y, and 19 major markets now favor buyers (nine more than last October). Affordability has improved to a three‑year high (a median‑earning family with 20% down would spend 32.9% of income on a typical mortgage) while the typical U.S. home value was essentially flat (+0.1% y/y) at $362,117 and the 30‑year fixed mortgage averaged 6.27% in mid‑October. The market remains constrained by high prices, mortgage rates and a “lock‑in” effect keeping sellers off the market, but NAR projects a 14% increase in home sales and 4% price growth next year, implying a gradual rebalancing that could modestly improve access for first‑time buyers if current trends continue.

Analysis

Zillow reports October as the strongest month in three years with total inventory up nearly 13% year‑over‑year and the prepandemic supply shortfall narrowed to roughly 17% from a 51% deficit in February 2022; new listings and pending sales each rose 5% year‑over‑year and 19 major markets now favor buyers (nine more than last October). The data indicate a clear rebalancing in supply-demand that has translated into a mildly positive market tone, particularly in previously supply-constrained metros.

Affordability has improved to a three‑year high: the average 30‑year fixed rate was 6.27% in mid‑October while the typical U.S. home value was essentially flat (+0.1% y/y) at $362,117; a median‑earning family with 20% down would spend 32.9% of income on mortgage payments, the smallest share since August 2022 but still above the 30% affordability threshold. The persistent "lock‑in" effect caused by legacy ~3% mortgages continues to constrain seller activity and thus limits supply-side mobility despite improving metrics.

The National Association of Realtors’ projection of a 14% increase in home sales and 4% price growth next year is consistent with the observed directional improvement, but material upside depends on sustained mortgage rate declines and easing of down‑payment barriers; first‑time buyers remain structurally challenged, which could mute a broad-based recovery if financing or equity hurdles persist.

Key Decisions for Investors

• Monitor mortgage rates and Zillow’s inventory and pending‑sales trends over the next 1–2 quarters; a sustained move below the current ~6.3% 30‑year rate alongside continued inventory gains would increase conviction in a housing recovery
• Consider selectively increasing exposure to housing‑transaction and services equities (including Zillow‑related names) only after leading indicators confirm durable demand improvement — specifically continued YoY gains in pending sales and a move in the affordability share toward or below 30%
• Size any housing exposure defensively and use hedges or options to protect against a reversal in rates or a stall in listings that would keep annual existing‑home sales near the ~4 million pace
• Watch first‑time buyer metrics (age, down‑payment capacity) and regional price movements closely, as persistent down‑payment barriers and lock‑in effects are the principal domestic risks to a broad recovery