It doesn’t take an Economist to tell you that, historically speaking, a healthy housing market consists of five to six months of supply. In layman’s terms, if no new homes hit the market, our housing supply would be exhausted within five to six months. What if I told you that this statistic that has been imprinted in our brains for decades is old news? 

Prior to the pandemic, new listings (supply indicator) and new pending sales (demand indicator) tracked very closely together. In fact, the variation between these two metrics hovered near zero for quite some time, indicating a balanced market. However, after the initial housing frenzy caused by the pandemic, we have seen the gap between new listings and new pending sales grow. This market imbalance between buyer and seller activity began in mid-2021 and has grown exponentially since the first quarter of 2024. 

Buyer activity has slowed for a number of reasons. Like the stock market, the housing market is also very receptive to consumer confidence and outside market conditions. For the first time since 2023, consumer housing sentiment was down year-over-year, according to the Fannie Mae Home Purchase Sentiment Index (HPSI)(1). This decrease was primarily due to consumers’ belief that mortgage rates will not go down in the next year, coupled with a growing concern regarding household income and job security. These issues have compounded the decreasing buyer activity across the nation. Contrary to popular belief, new construction is not the leading factor for the lack of sales. Housing starts for single-family homes were up 6.5% in 2024, ending the year on a high, 15.8% increase in December 2024.(2)

The price of existing homes continues to rise despite the decrease in demand, interest rates and wages are stagnant, and consumer confidence is down. Many Americans are reluctant to buy a home until market conditions have improved and economic uncertainty has receded.

 Although the decrease in buyer activity has led to an oversupply in the overall housing market, there is still an undersupply in affordable housing. Listings under $200k have dropped by nearly half since 2019 (Kentucky REALTORS®). Although the $200-300k price range occupies roughly 35% of all listings, that is still not affordable for many Kentuckians. 

According to the latest Census data, the median household income in Kentucky is $62,417 (U.S. Census Bureau). With that being said, following the suggested 28% debt-to-income ratio, the maximum home price a family could afford is roughly $220,000. Currently, the median sale price is $263,000, and the average sale price is over $300,000. In a balanced market, roughly half of all listings should be affordable at the median income. Currently, less than 30% of all listings are affordable at the median income. 

Additionally, first-time homebuyers have been disproportionately affected by the lack of affordable housing. According to the National Association of REALTORS® Priority Issues Survey, 79% of state and local associations identify institutional investors buying starter homes as a problem, with over one-quarter stating that it’s a major issue (2025 PolicyPulse, NAR). As more investors purchase large quantities of starter homes, the supply will continue to tighten, and more potential buyers will be forced out of the market. 

While the data suggests there is an oversupply in the housing market, extensive analysis tells us that first-time and second-time homebuyers are still struggling to find a home within their budget. Although buyer competition has relaxed and those searching for a home are under less of a time constraint than the pandemic-era, we can hypothesize that a reduction in interest rates would quickly flip the scenario as many buyers have been sidelined due to rate increases. With that being said, the oversupply in housing is a very nuanced topic, and isn’t entirely reflective of the state of housing, especially when it comes to the availability of affordable housing. 

So, what does this tell us about supply and what the new “norm” is? Currently, the housing supply in Kentucky sits at 3.75 months of inventory. This statistic has remained relatively consistent over the last year, while the 30-year fixed mortgage rate has hovered around 6-7% since September 2022.(3) Therefore, unless there is a drastic change in buyer demand, one could assume that the new “norm” for housing supply is more in the range of 3.5 - 4 months, rather than 5-6. While the difference of one month’s supply may not seem like a drastic change, those who practiced real estate before and after the pandemic know how different the market was when one month’s supply was all we had.
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1 https://www.fanniemae.com/newsroom/fannie-mae-news/consumer-housing-sentiment-down-year-over-year-first-time-2023
2 https://www.nahb.org/news-and-economics/press-releases/2025/01/housing-starts-end-2024-on-an-up-note
3 https://fred.stlouisfed.org/series/MORTGAGE30US