The Inventory Vanishing Act

Min 1

The National Association of Realtors released December existing home sales data on January 14th, revealing a market contradiction that changes everything for investors.

Sales jumped over 5% month-over-month to reach the strongest pace since early 2023. But inventory crashed—down nearly 20% in a single month to barely three months of supply.

That's the tightest inventory level since January of last year.

NAR Chief Economist Lawrence Yun called 2025 "another tough year for homebuyers" but noted Q4 conditions began improving with lower mortgage rates and slower price growth. What he didn't emphasize: sellers are vanishing even faster than buyers are returning.

Every region saw sales increase in December. The South led with gains approaching 7%, while the Northeast and Midwest posted more modest increases. But the real story isn't rising sales—it's disappearing inventory.

When inventory drops nearly 20% while sales rise over 5%, you're watching a supply crisis accelerate in real time.

If you're an investor tracking market fundamentals, this data signals prices are about to face serious upward pressure.

More buyers chasing dramatically less inventory creates the exact conditions that drive rapid appreciation, regardless of what mortgage rates do.

Min 2

The numbers reveal sellers pulling listings aggressively through year-end.

Inventory that stood at healthier levels earlier in 2025 suddenly contracted to barely over a million units nationally. At current sales velocity, that represents just over three months of supply—well below the roughly six months considered balanced.

Compare this to typical market patterns. Inventory usually builds heading into winter as holiday transactions slow.

Instead, December saw inventory plunge to levels not seen since the tight market conditions of early 2025. Sellers who listed properties earlier in the year either sold or withdrew listings rather than carrying them into the new year.

The median home price edged up only slightly year-over-year—less than 1% according to NAR data. That modest price growth masks the underlying tension. When inventory crashes this dramatically while sales accelerate, prices typically follow with a lag.

Properties that sold in December reflected November and October pricing. Properties selling in January and February will reflect this new supply-constrained reality.

Here's the investor payoff: markets experiencing both rising sales and plunging inventory see prices accelerate within weeks, not months.

Buyers who hesitated through most of 2025 are flooding back in as rates approach 6%, but they're discovering inventory disappeared while they waited. That creates bidding competition and upward price pressure.

Min 3

The dollar impact becomes obvious when you calculate what happens to property values in rapidly tightening markets.

A home purchased six months ago in a market with comfortable inventory might have appreciated modestly or stayed flat. That same market today with inventory down 20% and sales rising faces completely different dynamics.

Consider a rental property acquired in mid-2025 for roughly $400,000 in a metro experiencing these inventory conditions. If local inventory mirrors national trends—down sharply while sales accelerate—that property could easily appreciate several percentage points over the next few months as supply constraints intensify. Even modest appreciation of just a few percent means gaining over $10,000 in equity in a single quarter.

Scale that across multiple properties or markets experiencing similar inventory crunches.

The National Association of Realtors projects home sales jumping about 14% in 2026. If that forecast proves accurate while inventory remains this constrained, appreciation could run well ahead of the modest gains seen in 2025.

Most investors remain cautious, waiting for more confirmation that the market has truly turned. They're analyzing whether December's strength was seasonal or sustainable, running spreadsheets on different rate scenarios, and staying in cash or bonds.

Meanwhile, markets with this inventory-sales dynamic are setting up for meaningful appreciation as supply-demand imbalances worsen.

Min 4

Nimble investors are already repositioning. Local buyer groups tracked inventory levels dropping through December and accelerated their purchase timelines.

They recognized the pattern: when inventory crashes while sales rise, you're entering a seller's market regardless of broader economic narratives about affordability challenges.

Large institutions move slower...

Their investment committees need multiple quarters of confirming data before deploying significant capital into residential real estate. By the time they greenlight purchases in Q2 or Q3, inventory conditions will likely have tightened further and prices will have moved higher.

Here's your edge: this inventory crunch isn't uniform across all markets.

Some metros saw inventory drop even more dramatically than the national average. Others maintained relatively healthier supply levels. Focus on markets where inventory fell sharply while sales increased meaningfully—those are the markets setting up for the strongest near-term appreciation.

The strategy requires market-by-market analysis. Don't buy nationally on macro trends. Identify specific metros where December data showed both rising sales and crashing inventory.

Those markets offer the best risk-reward for purchases made in Q1 before price appreciation fully reflects the supply shortage.

The risk? If mortgage rates spike back toward 7%, buyer demand could evaporate and inventory might rebuild as discouraged sellers re-list properties.

Monitor rates weekly and watch for any signs inventory is stabilizing or rebuilding.

Min 5

This inventory collapse creates opportunity for investors positioned to move quickly. Properties listed in markets experiencing these conditions won't sit on the market for weeks anymore.

Sellers with any pricing discipline will receive multiple offers as buyers compete for limited options.

For those building rental portfolios, this environment means buying now before appreciation fully reflects the supply shortage.

A property purchased in February at current pricing could be worth noticeably more by summer simply from supply-demand rebalancing. You're not betting on a market recovery—you're capturing the mechanical effect of too many buyers chasing too little inventory.

The inventory data also confirms something deeper: the lock-in effect isn't easing. Homeowners with low mortgage rates aren't listing properties despite rates falling from 7% to 6%. They're staying put, waiting for rates to drop further before they'll consider selling. That means inventory remains constrained even as buying conditions improve.

Takeaway

December's inventory crash while sales surged signals a market shift that most investors haven't recognized yet.

Inventory falling nearly 20% in one month to barely three months of supply creates pricing pressure that typically manifests over the following quarter.

Translation: markets experiencing this dynamic face upward price pressure through spring regardless of broader economic conditions.

More buyers entering the market while inventory contracts dramatically means competition intensifies and prices rise.

The buying window is now through early Q2 at the latest. Once January and February sales data confirms the December pattern—rising transactions, tight inventory, accelerating prices—more buyers will pile in and competition will worsen.

Properties available today at prices reflecting the old market will be gone or significantly more expensive.

Watch inventory levels as your primary indicator. If inventory stabilizes or starts rebuilding, the urgency fades. But if inventory remains at these ultra-tight levels or contracts further, prices will rise faster than most forecasts predict.

Position accordingly before the market fully reprices for this new supply-constrained reality.