Nationally, home prices rose for 124 consecutive months between February 2012 and June 2022. Now we’re in reverse: Through September, the seasonally adjusted Case-Shiller National Home Price Index has posted three consecutive monthly declines. In total, this 2.2% decline in the lagged resale index ties the second biggest home price correction of the post-World War II era, although it remains far below the 26% correction between 2007 and 2012.

While it’s pretty clear that pressurized housing affordability has triggered some deflation in the US housing market, industry insiders remain divided on what the ongoing home price correction will look like in 2023. The reason? Demand and supply are sending mixed signals.

On the housing demand front, things remain slumped with mortgage purchase applications (down 38% year-over-year) currently just below their lowest point during the 2000s housing crash. On one hand, if financial conditions ease and mortgage rates fall in 2023, homebuyer demand will increase. on the other hand, the pandemic’s housing demand boom could’ve had a pull-forward effect that results in a slower than expected post-pandemic housing market.

On the housing supply front, things remain fairly tight nationally. While spiked mortgage rates corresponded to a huge decline in demand, it hasn’t caused sellers to rush for the exits. In fact, new listings on Realtor.com are down 17.25% on a year-over-year basis. Many buyers who would normally be looking to move up to a bigger house have postponed the switch because they don’t want to give up their fixed 2% or 3% mortgage rates they have for their current house.

So do buyers (for whom low demand is a potential tailwind) or sellers (for whom tight supply is a potential tailwind) have the upper hand? One of the best indications might be the direction of inventory—and its speed of change. At first glance, it might be easy to assume that inventory (ie active listings for sale) is simply a measurement of supply, however, it’s also a measurement of demand. If homebuyers pull back, and homes sit on the market longer, that can increase inventory levels (currently up 46.8% year-over-year) even if new listings (currently down 17.3% year-over-year) decline.

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Let’s take a closer look at inventory data in the nation’s 400 largest markets.

View this interactive chart on Fortune.com

Shortly after mortgage rates spiked this spring, the overheated US housing market cooled. That swift pullback in buyer demand finally gave inventory breathing room to rise.

While national inventory levels on Realtor.com are up 46.8% year-over-year, the picture varies significantly by market. Cities like Austin and Phoenix have seen their respective inventory levels soar 160.7% and 176%. Meanwhile, markets like Chicago and New York City remain essentially unchanged.

When it comes to inventory, the speed of change matters. A sudden inventory spike often marks a housing market that has moved into a full-blown correction. Of course, we now know that’s exactly what happened this summer in markets like Austin and Phoenix, where home values ​​are already down 10.4% and 8.1% from their respective 2022 peaks.

View this interactive chart on Fortune.com

Why are inventory levels spiking in some markets and flat in others? Well, for starters, fundamentals.

Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local house prices. If a regional housing market is “overvalued” by more than 25%, Moody’s Analytics deems it “significantly overvalued.” The Pandemic Housing Boom saw the “significantly overvalued” camp skyrocketed from 3 markets in the second quarter of 2019 to 210 markets by the second quarter of 2022. These frothy markets include places like Boise (“overvalued” by 74%) and Austin (” overvalued” by 61%).

Fast-forward to today, and those “significantly overvalued” markets, on aggregate, are shifting faster. The influx of high-earning remote workers saw home prices in boomtowns, like Boise and Idaho Falls, detach from local incomes. Of course, that becomes a problem when both remote worker migration slows and a 1981-level mortgage rate shock causes many local would-be borrowers—who must meet lenders’ strict debt-to-income ratios—to lose their mortgage eligibility. Cue falling home prices.

View this interactive chart on Fortune.com

In total, there were 751,544 active listings on Realtor.com in November 2022. That’s up from 511,899 listings in November 2021 and 683,606 active listings in November 2020. However, the number still remains far below the pre-pandemic active listing count of 1.14 million in November 2019.

some firms, like CoreLogic and Home. LLC, doubt that US home prices will fall in 2023 with inventory being this tight. Researchers at Morgan Stanley say those housing bulls should consider their stance.

“The fact that we expect home prices to start falling on an annual basis in March 2023 despite tight inventories reflects how unprecedented this affordability situation is in the US housing market,” wrote Morgan Stanley researchers who expect US home prices to decline by around 10% from peak-to-through even though supply remains below 6 months of inventory.

How can home prices fall even if inventory levels remain below pre-pandemic levels?

“When demand abruptly falls off a cliff, the absolute level of supply isn’t as relevant. This is where watching the rate of change on both supply and demand separately is critical,” Rick Palacios Jr., director of research at John Burns Real Estate Consulting, tells Fortune. “Investors accounted for the highest percentage of buyers ever this [housing] cycle in many markets. The lion’s share of those buyers are now on the sidelines, with some needing to sell given overleveraged and really being just taking a flyer on home price appreciation continuing to rip higher. Those days are now over, and these sellers don’t exhibit [the] same emotional/behavioral qualities associated with traditional owner-occupiers, which historically keeps home prices somewhat sticky on the downside. Builders also account for roughly twice their historical market share norm when it comes to for sale housing supply in the system (the denominator there is resale supply plus new home supply under construction and finished inventory). Builders meet the market on price while traditional owners aren’t as quick to drop prices.”

Heading forward, John Burns Real Estate Consulting expects inventory to rise further next spring. In terms of national home prices, the research firm expects a 20% to 22% peak-to-through decline if affordability remains hampered by 6% mortgage rates next year.

“It’s very likely that we see supply rise come spring, which is typical. New home supply in particular should rise, as we know finished homes (completions) are now increasing and builders have a lot more unsold homes still under construction working through the system, ” Palacios tells Fortune. “This will be the first spring selling season since 2008 where mortgage rates are ~6%, so we’re expecting a bumpy ride in general for sellers, especially if the economy is officially in a recession.”

Whenever a group like Morgan Stanley or John Burns Real Estate Consulting says US home prices, they’re talking about a national aggregate. Whatever comes next will definitely vary by market.

View this interactive chart on Fortune.com

Among the country’s 400 largest housing markets, 36 markets are back to pre-pandemic housing levels. The searchable chart (in alphabetical order) above displays those 36 markets.

In theory, higher inventory levels could depress home prices in those markets.

View this interactive chart on Fortune.com

Among the country’s 400 largest housing markets, 364 markets remain below pre-pandemic inventory levels. The searchable chart (in alphabetical order) above displays those 364 markets.

While Morgan Stanley researchers don’t think tight inventory will prevent home prices from declining, they do believe tight inventory levels will prevent a 2008-style crash.

“Although supply doesn’t keep home price growth floored at zero, we do believe it prevents home price declines from becoming too large,” wrote Morgan Stanley researchers.

Want to stay updated on the housing downturn? Follow me on Twitter at @NewsLambert.

This story was originally featured on Fortune.com

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