4 Reasons causing the inventory shortage in homes for sale
What are some of the reasons for the inventory shortage in housing today?
One question that’s top of mind if you’re thinking about making a move today is: Why is it so hard to find a house to buy? And while it may be tempting to wait it out until you have more options, that’s probably not the best strategy. Here’s why.
There aren’t enough homes available for sale, but that shortage isn’t just a problem today. 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.
1) Underbuilding Is a Long-Standing Problem
One of the big reasons inventory is low is because builders haven’t been building enough homes in recent years. The graph below shows new construction for single-family homes over the past five decades, including the long-term average for housing units completed:
For 14 straight years, builders didn’t construct enough homes to meet the historical average (shown in red). That underbuilding created a significant inventory deficit. And while new home construction is back on track and meeting the historical average right now, the long-term inventory problem isn’t going to be solved overnight.
2) Today’s Mortgage Rates Create a Lock-In Effect
There are also a few factors at play in today’s market, adding to the inventory challenge. The first is the mortgage golden handcuffs or rate lock-in effect. Basically, some homeowners are reluctant to sell because of where mortgage rates are right now. They don’t want to move and take on a rate that’s higher than the low-rate mortgage they have on their current home; effectively, they have become locked into mortgage golden handcuffs. The chart below helps illustrate just how many homeowners may find themselves in this situation:
Those homeowners need to remember their needs may matter just as much as the financial aspects of their move.
3) Rising Rates Continue to Sideline Borrowers
Increased mortgage rates continued to damp down both purchase and refinance activity during the week ended August 11. The Mortgage Bankers Association said its Market Composite Index, a measure of mortgage loan application volume, decreased 0.8 percent on a seasonally adjusted basis from the prior week and declined by 2 percent before seasonal adjustment.
4) Misinformation in the Media Is Creating Unnecessary Fear
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 Parcl, says:
“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”
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 fact from fiction.
How This Impacts You
If you’re wondering how today’s low inventory shortage affects you, it depends on if you’re selling or buying a home, or both.
- For buyers: A limited number of homes for sale means you could find yourself in a bidding war competing with other buyers over the same property which can drive the home price over asking. You will want to seriously consider all of your options, including various areas and housing types. A skilled professional will be helpful in helping buyers craft a winning offer. they will help you explore all of what’s available and find the home that best fits your needs by casting a broader net if you need to expand your search.
- For sellers: Today’s low inventory shortage actually offers incredible benefits because your house will stand out. In West Hartford, CT, home sellers are receiving multiple offers, often resulting in prices well above their asking price. A skilled profession realtor 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.
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, let’s connect. That way, you’ll have an expert on your side to explain how this impacts you and what’s happening with housing inventory in our area.