When Buyers Ask: Why is Inventory So Low?

One key question that’s top of mind for homebuyers this year: Why is it still so hard to find a house to buy? The truth is, we’re currently in the ultimate sellers’ market, so real estate has become hyper-competitive for buyers right now. The number of buyers searching for a home greatly outweighs how many homes are available for sale, with inventory reaching a new historical low earlier this month.

While low inventory in the housing market is not new, it’s a challenge that continues to worsen for some buyers. Below are two brief reasons you can provide your clients explaining why today’s housing supply is so low and what it means for them.

1. New Home Construction Fell Behind for Several Years

The graph below shows new home construction for single-family homes over the past five decades, including the long-term average for housing units completed. Builders exceeded that average during the housing bubble (shown in red on the graph) which resulted in an oversupply of homes on the market and home values declining.

Since then, the level of new home construction has fallen off. For the last 13 straight years, builders haven’t been able to construct enough homes to meet the historical average (as illustrated in green on the graph). That underbuilding left us with a multi-year inventory deficit going into the pandemic.

Buyers Want To Know: Why Is Housing Supply Still So Low? | MyKCM

2. The Pandemic’s Impact on the Housing Market

Then, when the pandemic hit, it fueled a renewed appreciation and focus on the meaning of home. Having a safe space to live, work, attend classes, and exercise became even more important for Americans throughout the country. So, as mortgage rates dropped to at or below 3%, more buyers eagerly entered the market looking to capitalize on those low rates to secure a home that would fulfill their changing needs. At the same time, sellers hesitated (and have continued to hold off) to put their houses on the market as concerns about the pandemic mounted.

The result? The number of homes available for sale dropped even further. A recent article from realtor.com explains:

Last month, the number of home listings dropped 26.8% compared with the same time a year earlier. This meant there were about 177,000 fewer homes listed in what’s already typically a slower month due to the holidays and colder weather. . . .”

Giving Your Clients Some Hope

For a buyer, low inventory can be a challenge. They want to find the home of their dreams, and don’t want to settle. But what if there just aren’t that many homes to choose from?

There is some good news. Experts are projecting more homes will soon become available thanks to sellers re-entering the market. Danielle Hale, Chief Economist at realtor.com, shares this hope, but offers perspective:

We expect that we’ll start to see a turnaround and inventory will stabilize and start to go up a little bit in 2022. . . . But that means we’re looking at inventory levels of roughly half of what we saw before the pandemic. For buyers, the market is likely to continue to move fast. If you see a home you like, you want to jump on it right away.

Basically, inventory is still low, even though more homes are coming. But, they probably shouldn’t put their plans on hold while waiting for those additional houses to hit the market. Instead, encourage them to stick with the search and persevere through today’s low inventory. The right home can come through at anytime, and it’s better to be prepared with all documents ready to go rather than needing to unexpectedly become organized, quickly.

Bottom Line 

If your clients are determined to buy this year, the key to success will be patience, given today’s low inventory. Connect with them often to discuss what’s happening in the area, what homes are available, and why it’s still worthwhile to prioritize a home search today.

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