Housing inventory in California and across the Sun Belt is surging to levels not seen in years, signaling potential price drops in markets that have remained stubbornly expensive despite high mortgage rates.

California’s active listings hit 61,000 in September, marking a five-year high and a dramatic 41% increase from the previous year, according to data from Realtor.com cited by Nick Gerli, CEO of Reventure Consulting.

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Gerli said areas including San Diego, Stockton, Modesto and Oxnard are seeing supply increases.

The story is similar across the South, where inventory has swelled to 493,000 listings, now just 8% below pre-pandemic levels. The surge spans multiple states, including Florida, Texas, Tennessee and Georgia.

“What’s going on in the South and West is very interesting,” Gerli said on X, formerly Twitter. “Inventory in these two regions is basically back to normal. And the months of supply [are] now above pre-pandemic levels.”

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The inventory buildup comes as sales volume plummets. The California Association of Realtors reported August 2024 sales among the lowest on record for the month, despite the expanded options for buyers.

The shift is evident in Florida, where some markets already see price corrections. Cities like Cape Coral, Lakeland, Tampa and Crestview are included in the list. Some condo owners in those areas are slashing prices by up to 40%, according to the New York Post, as they face incoming repair costs due to new state legislation.

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Adding to market pressures, the average down payment for U.S. homebuyers has reached an all-time high of $67,500, according to Redfin. Buyers are putting down larger percentages – typically 18.6% of the purchase price, up from 15% last year – to offset high mortgage rates.

Property-data firm Attom has identified more than 50 counties across America at risk of a housing price crash. California, New Jersey and Illinois have the highest concentration of vulnerable markets, based on indicators including underwater mortgages, foreclosures and unemployment rates.

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“The housing market boom continues to gain momentum. However, some markets show signs of potential instability,” said Attom chief executive Rob Barber.

The New York City metro area also shows signs of vulnerability. Kings County (Brooklyn), Richmond County (Staten Island) and Bronx County, along with four suburban New Jersey counties – Essex, Passaic, Sussex and Union – are among the areas Attom considers most at risk.

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In California, the potential downturn spans the state. Northern counties like Butte (Chico) and Humboldt (Eureka), central regions including San Joaquin (Stockton) and Stanislaus (Modesto) and southern areas like Riverside and San Bernardino all show warning signs.

As inventory continues to climb and sales remain sluggish, the next several months could reveal whether the warning signs translate into price corrections in some of the nation’s hottest housing markets.

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