Understanding Home Inventory and What It Means to You

Anyone recently in the market for a new home knows the limited options. As of August 2022, the number of active home listings was up 26% year over year, according to realtor.com. After housing stock hit record highs in 2021 and early 2022, the number of active listings has increased year over year since May.

“During the pandemic, people stopped selling their homes,” says Lisa Knee, president of real estate services at consulting firm EisnerAmper in New York.

While people now seem ready to put the pandemic behind them, housing inventory levels could still take years to rebound. Experts say that’s thanks to factors ranging from the 2008 housing crisis to an influx of millennial buyers. The bottom line for buyers and sellers is that the housing market will continue to offer both challenges and opportunities for some time to come.

The fallout from the housing crisis

The low housing stock of recent years is partly rooted in an event that occurred nearly 15 years ago. “There really haven’t been enough houses built since the housing crisis,” says Knee.

After the housing market collapsed in 2008, the number of new homes being built plummeted. There were 1.35 million new construction starts in 2007, but this number fell to just 554,000 in 2009. New construction starts only reached 1 million again in 2014 and continued to be lower than the 1.5 million number that was common in the 1980s and 1990s.

While there were 1.6 million new construction starts in 2021, Knee notes that almost half a million of them were for apartments or multi-family units rather than single-family homes. And now, supply chain issues cause delays in the completion of these properties.

With a shortage of new homes being built, this has pushed more buyers into the resale market. However, this is not the only reason for low inventory levels.

Millennial homebuyers drive demand

A low supply of homes for sale accounts for only half of the housing market’s current inventory problems. The other half is increased demand, especially from a generation that previously chose not to own.

“We have such a tight inventory because of this millennial group,” says Jeff Taylor, founder and managing director of Mphasis Digital Risk, which provides mortgage servicing solutions.

Millennials, who are defined as those between the ages of 23 and 41, are the largest living generation in the United States and have long been prone to lower levels of homeownership than their predecessors. However, that seems to be changing. More than 4 in 10 homebuyers are now millennials, according to 2022 generational home buyer and seller trends report from NRA.

As the oldest members of Gen Z approach their mid-20s, demand from first-time buyers for affordable homes may continue to swell and keep housing inventory tight.

Remote workers, investors boosting sales in some regions

While some people may have kept their homes off the market due to the COVID-19 pandemic, it has led others to move. As businesses adopt remote work as a permanent option, employees who no longer have to travel are free to consider less expensive or otherwise more desirable geographic locations.

A March 2022 report from freelance marketplace Upwork found that 2.4% of people say they’ve moved since 2020 because of remote work. Another 9.3% – totaling 18.9 million Americans – say they are planning a future move because of remote work.

Many of those workers are moving out of big cities, like San Francisco and New York, according to Upwork. The cities that attract them are often in States with lower tax rates or, for those moving at the height of the pandemic, had fewer living restrictions.

“Areas like Arizona and Nevada are starting to see an influx of people,” says Edward E. Fernandez, president and CEO of 1031 Crowdfunding, an online platform for real estate investors who want to make 1031 property exchanges. to defer the payment of taxes. .

In addition to remote workers, many investors are also competing for homes in popular areas. “Investors are ready to buy properties without seeing them,” says Fernandez, explaining the demand for housing in these areas.

Stock rebound could be years away

With so many factors affecting the market, housing inventory levels are unlikely to rebound any time soon. Nevertheless, the situation should improve for buyers.

“As interest rates start to rise, we should see a slowdown in the real estate market,” Fernandez said. He notes that there may be a lag of four to six months before interest rate hikes make a noticeable difference to sales.

Rising interest rates have cooled demand for new homes, which has kept listings active longer, but ultimately won’t affect larger supply issues.

“We have to get this Supply Chain moving,” says Knee. Once new homes are on the market again, the inventory of existing homes for sale may see an increase.

But don’t expect any changes any time soon. It will take “about four years before we see things stabilize,” Taylor says.

Considerations for Sellers and Buyers

When housing inventory is low, sellers can get the best price for their homes. In contrast, unless a seller owns a second home, they will need to purchase a new home.

“(Someone) who sells high also buys high,” notes Fernandez.

Sellers should do their homework before putting their property on the market. If buying a new home is unaffordable, it may be best to stay put. For those worried that they missed the best price sale, Taylor doesn’t think house prices will go down.

“I think price appreciation will stabilize, but I think home values ​​are extremely strong,” he says.

For buyers, the good news is that the days of double-digit price increases are probably over. The bad news is that there may still be few housing choices on the market and rising interest rates will make home ownership more expensive.

“The answer might be in the rental market,” says Knee. As rental prices are up and vacancy rates are down in the US, this could be a more affordable option for those who feel homeownership is overpriced.