Why is Housing Inventory so Low?

Housing inventory so low today because construction slowdowns, rising material costs, and chronic labor shortages have severely restricted new home building while demographic shifts and increased migration continue to drive buyer demand.

We can look at an analysis of the housing market over the years. Sadly, the housing supply has dropped. Real estate investors now struggle to find good properties. Price hikes are not the only reason for the shortage.

What does low housing inventory mean?

Housing inventory counts the number of houses sellers list on the market. The inventory level hit its lowest point in 2021. We can see this from the statistics. The results still show little improvement today. In fact, 2022 seems worse for home buyers. Prices rose while inventory fell.

Many factors caused this disappointment for US buyers. To understand the roots better, we can explore the topic. We will list several causes of the market crash.

Are we in a housing recession?

The answer depends on which side of the market you look at. Existing homeowners are not facing a recession. They own high-value properties. This gives them clear privileges in the real estate market.

However, home buyers are in a tough spot. They struggle to find properties they like. The low number of listings suggests a housing recession. This is caused by fewer house sales and construction imbalances.

How does low home inventory affect the housing market?

Low housing supply directly affects the real estate market. When interest rates rise and home inventory is low, prices must rise. Mortgage interest rates feel the impact of this shift as well.

Existing home sales might not cover affordable communities. This limits buyer options. Rising interest rates let current homeowners raise their home values. Sellers are taking advantage of this shift. Buyers searching for a new home should expect to pay high prices.

Is there a housing shortage in the US?

Lower building supplies also cause the housing recession. A shortage of new homes across the US reduces housing inventory. We have seen fewer construction projects in the past few years. Therefore, a housing shortage is unavoidable.

Competition between home buyers and investors

Home buyers face a hard time. They must compete with each other due to low housing inventory and high demand. Investors are making this issue even worse.

Property management has been a popular business since the pandemic. Many investors plan to buy real estate and prepare to join the rental property market. Property management companies have gained more value as well.

Investment companies try to buy as many properties as possible to attract tenants with a wide range of options. These companies have large budgets and special privileges. They have a better chance of buying real estate than normal buyers. This drives the housing inventory even lower.

Legal and bureaucratic obstacles

Legal issues also explain the real estate inventory shortage. Home builders deal with these problems often. Construction companies must meet strict requirements to get building permits.

Builders must navigate complex construction policies and legal systems. They try to build homes across the country to beat competitors. One crucial point is the wide variety of laws. These rules differ greatly from state to state.

Rising material costs

Building materials have risen in value. Inflation is one reason for these price hikes. We can check currency rates to review the economic situation. The results have been poor since the pandemic started in 2020.

Construction companies often buy supplies from European and Asian makers. They do this for better quality and production rates. Each country makes specific products with local materials. For example, Italy leads the ceramic industry. But competition is growing. Spain and Turkey have joined the business, and prices have hit a high point.

Shipping costs also make it hard for construction companies to operate. We will discuss this more later.

Chronic shortages of skilled labor

Hiring is a huge issue for construction sites. Many job seekers prefer office jobs over physical labor.

A shortage of skilled labor has always existed. Today, self-employment is very popular among younger workers. This means fewer people seek jobs at construction sites. Also, the people who do apply often lack field experience.

Sellers aren't looking for buyers

A lack of active sellers also causes housing market issues. Sometimes, homeowners put up a yard sign. But they are rarely willing to hire real estate agents.

Sellers do not always hire property management companies. Some homeowners think a simple online ad is enough to sell their property. This causes problems because buyers do not all use the same platforms.

Buyers should not be the only ones searching. To sell a house at a good price, sellers must put energy into the process. They need to reach out to real estate agents. They should also try to find buyers on their own.

Sellers aren't listing during the Pandemic

The pandemic is still fresh in people's minds. Homeowners are afraid to list their homes for sale. Many worry that a new lockdown could happen soon.

Sellers do not want to sell their homes and become buyers. The buyer competition is just too high. Low housing inventory scares many current homeowners. They do not want to trade their current homes to face that fierce competition.

It is hard to find a well-equipped house at a good price in affordable areas. We already covered many housing market issues. Sellers know buyers have limited options. Also, record-low interest rates keep current homeowners from listing their properties.

Sellers look at mortgage rates, low inventory, home prices, and lending services. They would rather keep their homes for now. As a result, the current sales pace stays slow.

Buyers have fewer contractual protections

Legal policies are vital in the housing market. Buyers must feel secure when signing a contract. They need to know they are getting their money's worth. The risk is high when home prices are this steep.

Mortgage interest rates do not make things easier for buyers. Contracts often limit property ownership until the full price is paid. This makes it hard for buyers to make a final decision.

Seller's markets

A seller's market means inventory is extremely low compared to demand. This gives sellers a big advantage. Homeowners can raise their prices as much as they want when competition is low.

Homes are more expensive

As we noted, sellers can raise home prices due to high demand and low competition.

Low housing inventory has greatly affected prices. Investors buy many of the homes for sale today. This lets homeowners profit by selling to corporations. Sellers are taking full advantage of the property management industry.

In the end, homes have become very expensive. Their overall value has risen. There are far fewer homes available at affordable prices.

The shift in Demographics

Studies show that certain age groups have fewer home buyers today. In 2003, there were up to 400,000 buyers aged 30 to 35. By 2013, there were fewer than 150,000 home buyers in that same age group.

Typically, there are more home buyers between the ages of 35 and 45. A shift in demographics will affect housing inventory and demand. Fewer people in these age groups own homes. This leads to fewer sellers.

Increased migration

A large wave of migration increases the demand for housing. More people are looking for houses. Many immigrants prefer to rent. This gives investors more reason to buy real estate. This brings us back to investors competing with regular home buyers.

Construction has slowed down

We mentioned the lack of new construction earlier. We also noted the shipment of building supplies. Due to current political events, shipping materials from Europe takes longer than usual.

High mortgage rates also make it hard for construction companies to sell properties. Because of this, they avoid investing in future buildings. New projects might end up too risky for their businesses.

When will the housing supply catch up with demand?

Given these points, housing inventory will not catch up with demand in 2022. Prices seem to rise even more each month. The housing supply remains short. We can only hope the economy improves and mortgage rates drop. The supply could catch up over the next few years if more homeowners sell and buy. It could also help if more buyers can afford homes in nice areas. Sadly, 2022 will not be one of those years.

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Guest Post By: Goodjuju: The Property Management Marketers

Why is housing inventory so low?

Housing inventory remains low due to several factors. These include rising material costs, skilled labor shortages, and a slowdown in new construction. Also, many current homeowners choose not to list their properties. This further limits the number of available homes.

What federal thresholds apply to affordable housing applicants?

To accurately determine adjusted income and enforce asset limits, managers must also apply the following federal thresholds: