Why Inventory Is So Low in the US Housing Market

If you’ve been house hunting for the last two years, you probably feel like there’s a giant “no vacancy” sign hanging in the buyer’s market. Homes that come up for sale have flown off the market in record time (often above their list prices), and you always hear the same buzz phrase: “There’s a shortage of stock!”

This shortage? It’s acute. According to a report from Realtor.com, America is missing more than 5 million homes based on population. So how did we get to the point where it’s so hard to even to find a house to buy, and is there relief in sight? Ahead, real estate experts break it down.

Why is there such an extreme shortage of inventory?

You can trace this housing shortage back to the last recession. When the housing bubble burst in 2008, many small homebuilders closed, which slowed the production of new homes across the country, says Isaiah Henry, CEO of Seabreeze management companya group that manages commercial and residential properties in California and Nevada.

As construction slowly began to pick up, global supply chain issues over the past two years blunted progress. According to National Association of Home Builders.

Traditionally, homebuilders in this country have built an average of about a million homes a year — or at least they should have been, in order to keep up with the demand that will soon be needed, says Fort Walton Beach, a realtor in Florida. Andrew Iremonger with eXp Realty. Over the past decade, he says, builders haven’t come close to hitting that million homes a year, except in 2021.

“Step into millennials,” Iremonger says. “They are the second-largest buying demographic in history, just a tiny bit behind baby boomers.” The average first-time home buyer is 34 and the average millennial is now 35, and as they continue to flood into the market, more homes are needed, he points out.

On top of all that, companies like Opendoor, We Buy Ugly Houses, as well as real estate investors doing repairs and renovations have reduced much of the inventory of available homes, says David Auerbach, chief executive of Armada ETF Advisors, who has over two decades of experience in the real estate investment trust industry. As for new homes coming onto the market, many are outside the price ranges of most buyers, Auerbach says.

How has the pandemic contributed to stockouts?

Historically low interest rates during the pandemic have undoubtedly attracted buyers eager to borrow money on the cheap. Eager buyers, however, didn’t come across many homes for sale, and sellers were in some cases timid.

“During the pandemic, many people stopped sell their homes,” says DJ Olhausen, a San Diego, California real estate agent with Realty ONE Group Pacific. “A lot of this was due to the uncertainty of the future mixed with the general public’s wish to keep strangers out of their homes. [for showings].”

In recent years, older generations and ’empty nesters’ have been staying in their homes much longer, meaning they’re not downsizing like they have in the past, says Jamie Erflea Philadelphia-area real estate agent with Compass and team leader with Modern Luxe.

“During the Covid shutdown, many young adult children went home with their parents, so suddenly extra space was needed again,” she says.

The pandemic has also put new pressures on the rental market.

With much of the workforce working from home over the past two years, the corporate world has shifted to residential neighborhoods, with guest bedrooms turning into offices and dining rooms becoming workspaces, explains Baron Christopher Hansonconsultant and real estate agent with Coldwell Banker Realty in Jupiter and Stuart, Florida.

“The extra space that could have been rented all of a sudden disappeared in order to absorb hundreds of millions of FMH jobs,” he says.

Will interest rates release stocks?

It remains to be seen how rising interest rates will affect housing stock.

On the one hand, rising rates will likely deter homeowners from selling because they’ll want to keep their low monthly payments locked in, Olhausen says. “Who wants to move to a new home when your mortgage rate will be 3 points higher than your current mortgage?” he says.

On the other hand, more investors will be pressured not to potentially buy into the housing market, Auerbach said.

Plus, rising rates could drive some buyers away, which means less competition for those serious about finding a home and refinancing at a lower rate down the line.

“The good news: rising interest rates in 2022 and the urgency to ‘lock in’ rates are diminishing, which means more inventory and some breathing room for buyers,” says Caroline Gagnonlicensed real estate salesperson with Compass NYC.

Follow House Beautiful on instagram.

This content is created and maintained by a third party, and uploaded to this page to help users provide their email addresses. You may be able to find more information about this and similar content on piano.io