Why Is Housing Inventory So Low?

<article class="post-796746 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-796746"><span class="entry-date">September 14, 2023</span><div class="entry-header center-block text-center"><h1 class="entry-title">Why Is Housing Inventory So Low?</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Why+Is+Housing+Inventory+So+Low%3F&url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fwhy-is-housing-inventory-so-low%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="Why Is Housing Inventory So Low? Simplifying The Market" decoding="async" loading="lazy" src="https://files.keepingcurrentmatters.com/content/images/20230911/20230914-Why-Is-Housing–Inventory-So-Low.png" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width="358"/>
<p>One question that’s top of mind if you’re thinking about <a href="https://www.simplifyingthemarket.com/2023/08/14/where-are-people-moving-today-and-why/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">making a move</a> today is: <em>Why is it so hard to find a house to buy?</em> And while it may be tempting to wait it out until you have <a href="https://www.simplifyingthemarket.com/2023/08/25/todays-housing-market-has-only-half-the-usual-inventory-infographic/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">more options</a>, that’s probably not the best strategy. Here’s why.</p>
<p>There aren’t enough homes available for sale, but that <a href="https://www.simplifyingthemarket.com/2023/08/08/theres-only-half-the-inventory-of-a-normal-housing-market-today/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">shortage</a> isn’t just a today problem. It’s been a challenge for years. Let’s take a look at some of the long-term and short-term factors that have contributed to this limited supply.</p>
<h4><strong>Underbuilding Is a Long-Standing Problem</strong></h4>
<p>One of the big reasons inventory is low is because builders haven’t been <a href="https://www.simplifyingthemarket.com/2023/08/09/the-value-of-an-agent-when-buying-your-new-construction-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">building</a> enough homes in recent years. The graph below <a href="http://www.census.gov/construction/nrc/xls/co_cust.xls" rel="noopener noreferrer" target="_blank">shows</a> new construction for single-family homes over the past five decades, including the long-term average for housing units completed:<a href="https://www.simplifyingthemarket.com/content/images/20230911/20230914-Single-Family-Housing-Units-Completed.png?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank"><img decoding="async" src="https://files.keepingcurrentmatters.com/content/images/20230911/20230914-Single-Family-Housing-Units-Completed.png"/></a></p>
<p>For 14 straight years, builders didn’t construct enough homes to meet the historical average (<em>shown in red</em>). That underbuilding created a significant inventory deficit. And while <a href="https://www.simplifyingthemarket.com/2023/08/17/people-want-less-expensive-homes-and-builders-are-responding/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">new home construction</a> is back on track and meeting the historical average right now, the long-term inventory problem isn’t going to be solved overnight. </p>
<h4><strong>Today’s Mortgage Rates Create a Lock-In Effect</strong></h4>
<p>There are also a few factors at play in today’s market adding to the inventory challenge. The first is the mortgage rate <a href="https://www.simplifyingthemarket.com/2023/08/01/sellers-dont-let-these-two-things-hold-you-back/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">lock-in effect</a>. Basically, some homeowners are reluctant to sell because of where <a href="https://www.simplifyingthemarket.com/2023/08/03/how-inflation-affects-mortgage-rates/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">mortgage rates</a> are right now. They don’t want to move and take on a rate that’s higher than the one they have on their current home. The chart below helps <a href="https://www.fhfa.gov/DataTools/Downloads/Pages/National-Mortgage-Database-Aggregate-Data.aspx" rel="noopener noreferrer" target="_blank">illustrate</a> just how many homeowners may find themselves in this situation:<a href="https://www.simplifyingthemarket.com/content/images/20230911/20230914-70.7-percent-of-mortgage-rates-less-than-4.png?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank"><img decoding="async" src="https://files.keepingcurrentmatters.com/content/images/20230911/20230914-70.7-percent-of-mortgage-rates-less-than-4.png"/></a></p>
<p>Those homeowners need to remember <a href="https://www.simplifyingthemarket.com/2023/08/29/why-you-may-still-want-to-sell-your-house-after-all/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">their needs</a> may matter just as much as the financial aspects of their move.</p>
<h4><strong>Misinformation in the Media Is Creating Unnecessary Fear</strong></h4>
<p>Another thing that’s limiting inventory right now is the fear that’s been created by the media. You’ve likely seen the negative headlines calling for a housing crash, or the ones saying home prices would fall by 20%. While neither of those things happened, the stories may have dinged your confidence enough for you to think it’s better to hold off and wait for things to calm down. As Jason Lewris, Co-Founder and Chief Data Officer at <em>Parcl</em>, <a href="https://www.parcllabs.com/articles/q3-real-estate" rel="noopener noreferrer" target="_blank">says</a>:</p>
<blockquote><p><em>“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”</em></p></blockquote>
<p>That’s further limiting inventory because people who would make a move otherwise now feel hesitant to do so. But the market isn’t doom and gloom, even if the headlines are. An agent can help you separate <a href="https://www.simplifyingthemarket.com/2023/08/23/why-you-need-a-true-expert-in-todays-housing-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">fact from fiction</a>. </p>
<h4><strong>How This Impacts You</strong></h4>
<p>If you’re wondering how today’s low inventory affects you, it depends on if you’re selling or buying a home, or both.</p>
<ul>
<li><strong>For </strong><a href="https://www.simplifyingthemarket.com/2023/08/02/how-to-know-if-youre-ready-to-buy-a-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank"><strong>buyers</strong></a><strong>:</strong> A limited number of homes for sale means you’ll want to seriously consider all of your options, including various areas and housing types. A skilled professional will help you explore all of what’s available and find the home that best fits your needs. They can even coach you through casting a broader net if you need to expand your search.</li>
<li><strong>For </strong><a href="https://www.simplifyingthemarket.com/2023/08/30/buyer-traffic-is-still-stronger-than-the-norm/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank"><strong>sellers</strong></a><strong>:</strong> Today’s low inventory actually offers incredible benefits because your house will stand out. A real estate agent can walk you through why it’s especially worthwhile to sell with these conditions. And since many sellers are also buyers, that agent is also an essential resource to help you stay up to date on the latest homes available for sale in your area so you can find your next dream home. </li>
</ul>
<h3>Bottom Line</h3>
<p>The low supply of homes for sale isn’t a new challenge. There are a number of long-term and short-term factors leading to the current inventory deficit. If you’re looking to make a move, connect with a real estate agent. That way you’ll have an expert on your side to explain how this impacts you and what’s happening with housing inventory in your area.</p>
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