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Why Is Housing Inventory So Low?


If you're contemplating a move in today's real estate market, you're likely pondering why it's become so challenging to find a home to buy. While waiting for more options may seem tempting, it may not be the most strategic approach. Here's why.


The scarcity of available homes for sale isn't just a recent issue; it's been an ongoing challenge for years. To understand the current shortage, let's delve into both the long-term and short-term factors contributing to this limited housing supply.


Underbuilding Is a Persistent Issue

A significant reason behind the low housing inventory is the insufficient number of homes constructed in recent years. The graph below illustrates new construction for single-family homes over the past five decades, including the long-term average for completed housing units:



For 14 consecutive years, builders failed to construct enough homes to match the historical average (depicted in red). This chronic underbuilding has resulted in a substantial inventory deficit. Although new home construction has returned to meet the historical average, solving the long-term inventory problem will not happen overnight.


Today's Mortgage Rates Create a Lock-In Effect

In the present market, several factors are exacerbating the inventory challenge. One such factor is the mortgage rate lock-in effect. Some homeowners are hesitant to sell due to the current mortgage rate landscape. They are reluctant to move and acquire a higher rate than their existing home loan. The chart below offers insights into the number of homeowners potentially affected by this situation:



These homeowners should remember that their personal needs are equally significant as the financial aspects of their move.


Media Misinformation Generates Unwarranted Fear

Another factor contributing to the current inventory shortage is the fear propagated by media coverage. You may have encountered alarming headlines predicting a housing crash or substantial home price declines, even though neither of these scenarios materialized. These stories might have eroded your confidence to the extent that you're inclined to delay your real estate plans until the situation appears more stable. As Jason Lewis, Co-Founder and Chief Data Officer at Parcl, notes:


"In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt."


This fear is further restricting inventory because potential sellers who would otherwise be motivated are now hesitant. However, the market's reality differs from the grim headlines. A real estate agent can help you navigate through this information fog and provide accurate insights.


How This Impacts You

The impact of today's low housing inventory depends on whether you're buying, selling, or engaging in both transactions.


For buyers: The limited availability of homes for sale necessitates careful consideration of all your options, including different areas and types of housing. A knowledgeable professional can guide you through an extensive exploration of available properties and help you find the home that best aligns with your needs. If required, they can also assist in broadening your search.


For sellers: The current low inventory situation presents significant advantages because your property will stand out in the market. A real estate agent can explain why it's especially advantageous to sell under these conditions. Additionally, since many sellers are also buyers, your agent can keep you updated on the latest homes available in your area to help you find your next dream home.


The scarcity of homes for sale isn't a recent phenomenon. Various long-term and short-term factors have contributed to the current inventory deficit. If you're contemplating a real estate move, consider reaching out to a real estate agent. They can serve as your expert guide, providing insights into how these factors impact you and offering valuable information about housing inventory in your specific area.

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