Understanding the Dearth of Housing Inventory - Exploring the Causes

Lisa Mailhot  |  September 14, 2023

Buyers

Understanding the Dearth of Housing Inventory - Exploring the Causes

 

When contemplating a move in today's real estate market, the prevailing question is: Why is it such a daunting task to locate a suitable home for purchase? While the allure of waiting for more options may seem tempting, it might not be the most prudent strategy. Here's the rationale behind it.

The scarcity of homes available for sale is not a recent phenomenon; it has been an ongoing issue for quite some time. Let's delve into both the long-term and short-term factors contributing to this restricted supply.

Prolonged Underbuilding as a Fundamental Issue

A significant reason behind the low housing inventory is the inadequate pace of home construction in recent years. The graph below illustrates the construction of single-family homes over the last five decades, encompassing the long-term average for completed housing units:

 

For a staggering 14 consecutive years, builders failed to produce enough homes to meet the established historical average (depicted in red). This underbuilding has resulted in a substantial inventory shortfall. Although new home construction is currently back on track, aligning with the historical average, the enduring inventory challenge won't be resolved overnight.

Today's Mortgage Rates and the Lock-In Effect

Several factors are currently contributing to the inventory predicament in today's market. One such factor is the lock-in effect of mortgage rates. Essentially, some homeowners are hesitant to sell due to the current mortgage rate situation. They are reluctant to relocate and assume a rate higher than what they have on their existing property. The chart below provides insight into how many homeowners might be in this predicament:

These homeowners should bear in mind that their needs hold just as much significance as the financial aspects of their move.

Media Misinformation Fueling Unwarranted Fear

Another factor limiting inventory at present is the fear that has been instilled by the media. You've probably encountered pessimistic headlines predicting a housing market crash or suggesting a 20% plunge in home prices. While neither of these scenarios materialized, these stories may have eroded your confidence, making you inclined to postpone your plans until the situation stabilizes. As Jason Lewis, Co-Founder, and Chief Data Officer at Parcl, aptly puts it:

“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”

This fear factor is further constraining inventory as potential movers hesitate to take action. However, it's crucial to recognize that the real estate market isn't all doom and gloom, despite what the headlines may suggest. A real estate agent can help you differentiate between fact and fiction.

How This Impacts Your Real Estate Journey

The impact of today's low housing inventory hinges on whether you are in the process of selling, buying, or perhaps both.

  • For buyers: The limited selection of homes for sale necessitates thorough consideration of all available options, including different areas and housing types. A proficient professional can guide you through exploring all available choices to find the home that best aligns with your requirements. They can also assist you in broadening your search if needed.
  • For sellers: The current low inventory scenario offers distinct advantages because your property will stand out. A real estate agent can elucidate why selling under these conditions is particularly advantageous. Since many sellers are also buyers, the agent serves as an indispensable resource to help you remain informed about the latest homes available for sale in your area, facilitating the pursuit of your next dream home.

Bottom Line

The scarcity of homes for sale is not a novel challenge. Numerous long-term and short-term factors contribute to the existing inventory shortfall. If you're contemplating a move, let's establish a connection. This way, you'll have an expert by your side to elucidate the implications for you and keep you informed about the state of housing inventory in our region.


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