H
ousing inventory in California and the Sun Belt is surging, potentially leading to price drops in expensive markets despite high mortgage rates. In California, active listings hit a five-year high of 61,000 in September, a 41% increase from last year, according to Realtor.com data cited by Nick Gerli, CEO of Reventure Consulting.

    Gerli notes that areas like San Diego, Stockton, Modesto, and Oxnard are seeing significant supply increases. The story is similar across the South, where inventory has swelled to 493,000 listings, just 8% below pre-pandemic levels. This surge spans multiple states, including Florida, Texas, Tennessee, and Georgia.

    "What's going on in the South and West is very interesting," Gerli said. "Inventory in these two regions is basically back to normal, and the months of supply are now above pre-pandemic levels." The inventory buildup comes as sales volume plummets, with California Association of Realtors reporting August 2024 sales among the lowest on record.

    In Florida, some markets are already seeing price corrections. Cities like Cape Coral, Lakeland, Tampa, and Crestview have seen condo owners slashing prices by up to 40% due to incoming repair costs from new state legislation. The average down payment for U.S. homebuyers has reached an all-time high of $67,500, with buyers putting down larger percentages to offset high mortgage rates.

    Property-data firm Attom has identified over 50 counties at risk of a housing price crash, with California, New Jersey, and Illinois having the highest concentration of vulnerable markets. The New York City metro area also shows signs of vulnerability, as well as four suburban New Jersey counties. As inventory continues to climb and sales remain sluggish, the next several months could reveal whether warning signs translate into price corrections in some of the nation's hottest housing markets.