If you're contemplating a move in today's real estate market, a burning question on your mind is likely: Why is it such a daunting task to find a house to purchase? While the idea of waiting for more favorable options may be tempting, it might not be the wisest course of action. Here's why.
The scarcity of available homes is a persistent issue, not just a recent one. This shortage has posed a challenge for several years. Let's delve into both the long-term and short-term factors contributing to this limited supply.
Long-standing Issue of Underbuilding
A significant reason for the low housing inventory is the insufficient construction of new homes in recent years. The graph below illustrates the construction of 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 meet the historical average, as indicated in red. This underbuilding has resulted in a substantial inventory deficit. While new home construction is currently back on track, aligning with the historical average, the long-term inventory problem won't be resolved overnight.
The Mortgage Rate Lock-In Effect Today
Several factors in today's market contribute to the inventory challenge. One such factor is the "mortgage rate lock-in effect." Essentially, some homeowners are hesitant to sell because of the current mortgage rates. They are reluctant to move and acquire a higher interest rate than what they have on their current home. The chart below illustrates the number of homeowners who may find themselves in this situation:
These homeowners should consider that their needs are just as significant as the financial aspects of their relocation.
Media-Driven Misinformation Creates Unwarranted Fear
Another factor restricting inventory at present is the fear propagated by the media. You've probably come across pessimistic headlines predicting a housing crash or a 20% decline in home prices. While neither of these scenarios materialized, these stories may have eroded your confidence, making you think it's better to delay and wait for things to stabilize. As Jason Lewis, Co-Founder and Chief Data Officer at Parcl, points out:
"In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt."
This further hampers inventory because individuals who would otherwise be inclined to move now feel hesitant to do so. However, despite the ominous headlines, the market isn't all doom and gloom. A real estate agent can help you distinguish fact from fiction.
How This Affects You
The impact of today's low inventory depends on whether you are selling or buying a home, or perhaps both.
For buyers: With a limited number of homes available for sale, it's crucial to thoroughly explore all your options, including different areas and housing types. A knowledgeable professional can assist you in considering all available choices and finding the home that best suits your needs. They can even guide you in broadening your search if necessary.
For sellers: Today's low inventory presents significant advantages because your property will stand out. A real estate agent can explain why it's particularly advantageous to sell under these conditions. Moreover, since many sellers are also in the market to buy, your agent can keep you informed about the latest homes for sale in your area, facilitating your quest for your next dream home.
In Conclusion
The shortage of homes for sale is not a recent issue. It stems from a combination of long-term and short-term factors. If you're contemplating a move, it's advisable to connect with a real estate agent. This way, you'll have an expert by your side to clarify how these circumstances affect you and provide insights into the state of housing inventory in your area.
