Why is housing inventory so low? Why does there continue to be a housing shortage? This is a key question that has been on the top of minds of home buyers since mid 2020. This continues to be a problem for buyers, but why?
Hi, I’m Charlotte and I am a local realtor here in Thurston County. The truth is that we are still in the ultimate seller’s market. Real state is crazy competitive for buyers. The number of buyers searching for a home continues to exceed how many homes are available for sale. While this low inventory in the housing market isn’t new, it’s a challenge that continues to grow over time. Let’s talk about a few of the reasons why housing supply is low and what that means for you.
Number one, new home construction fell behind for several years. This graph shows new home construction for single family homes over the past five decades, including the longterm average for housing units completed. Builders exceeded that average during the housing bubble, which is shown in red and the result was an oversupply of homes on the market so home values declined. That was one of several factors that led to the housing crash back into 2008. 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 traded in green on the graph. That under building left us with a multiyear inventory deficit, going into the pandemic.
Number two, the pandemic’s impact on the housing market. When the pandemic hit, it changed how people viewed their homes. Having a safe space to live, work, school and exercise became even more important. As mortgage rates dropped to the historically low 3% or below, buyers entered the market looking to take advantage of those low rates to purchase a home that would fulfill their new needs. At the same time, sellers hesitated to put their houses on the market due to concerns surrounding the pandemic. The result was 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 that there were about 177,000 fewer homes listed in what’s already typically a slower month due to the holidays and colder weather.”
There is a third factor to consider here. It isn’t exactly the reason for why the inventory is lower but it’s one of the reasons that the problems of low inventory are exacerbated. The tailwind of the millennial generation has reached home buying age so the buyer pool became a lot larger. Archana Pradhan from CoreLogic said in an April 2021 article, “This demographic tailwind comprises the largest generation of households who are approaching their first time homebuying years. As a whole, their share rose even higher in 2020 as millennial homebuyers comprised more than half of overall home purchase applications.” She goes on to state, “But in 2020, the share of millennials in the homebuying market soared seven percentage points in 2020, reaching 54% of all purchase applications. And while half of the increase is consistent with the natural growth rate seen since 2014, the additional half of the 2020 jump was likely driven by the pandemic. In other words, the increase was accelerated by record low mortgage interest rates and flexibility to work remotely.” The buyer pool grew larger than a normal rate, driven low mortgage rates and the flexibility of working remotely.
What does all this mean for you? For a buyer, low inventory can be a huge challenge. You want to find the home of your dreams and you definitely 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 be available thanks to sellers reentering the market. Danielle Hale, chief of economists at realtor.com shares this hope but she also 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 are 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’s still low, even though there are more homes coming but you shouldn’t put your plans on hold because you’re waiting for those additional houses to hit the market. The homes that are coming are not going to be enough to get us out of this low inventory market. Like Danielle Hale said, “We are still going to be looking at inventory levels of roughly half of what we saw pre-pandemic.”
Instead, you need to stick with your search and persevere through today’s low inventory. You can find your next home if you’re patient and focused. Remember your goals and why finding a home is so important to you. Those things should be the driving force behind your search. Be very clear about your priorities. You will find your home but it might not be in one month. You will have to be patient and remain focused. If you want to know what our local Thurston County market is doing right now, check out this video here. I hope this was helpful. Thanks so much for watching. See you next time.