What's in this article?
“Low housing inventory” is a term that has the housing market buzzing across the country.
But what does it mean to purchase a home in 2022?
If you are thinking of or are in the process of buying a house, you should familiarize yourself with “low housing inventory” quickly. It’s a crucial characteristic of the real estate market today and it’s better to understand it before starting your house hunt.
Let’s look at some of the most important things to know about low housing inventory and how it affects today’s housing market.
Homebuyers and housing inventory
Buying a house is a big part of the American dream.
It used to be that you could log onto one of the popular house hunting apps like Zillow and find dozens of potential homes.
But in today’s market, many homebuyers are struggling to find their dream home.
This situation is directly due to the lack of homes available in the real estate market and is what they mean by low housing inventory.
And it’s not just a problem for large city centers like New York. It’s a country-wide situation.
So how did we get here? And what does it mean for affordability and homebuyers to be in a seller’s market?
Want more personalized rates?
Get customized rates tailored to your individual mortgage needs.See Today’s Rates
How can the housing market have such low inventory?
The COVID-19 pandemic is the obvious answer to this problem. However, the market on its own is affected by many different things. Many factors have contributed to the current issue of low inventory.
Back in early 2020, millions of people were sent home by their employers to stop the rapid spread of COVID-19.
The pandemic caused many worldwide to lose their jobs while others started working from home. Schools also switched to remote learning. Practically overnight, the systems of how Americans ran their lives completely changed.
Such a drastic shift in lifestyle left many people reluctant to sell their homes because of incredible uncertainty for the future.
Many homeowners who were thinking of selling decided to put off the sale until things stabilized. Was the economy going to collapse completely? Was the housing market going to plummet? Nobody knew for sure.
As we’ve adapted to new employment and schooling styles, the market continues to try to catch up from pandemic delays and accommodate homebuyers’ new ways of life.
The rise of work from home
Business and housing predictions indicate that 25% of all professional jobs in North America will be remote by the end of the year. This “work from home” trend is also predicted to increase in the coming year.
As a result, working professionals across America are relocating from the cities to quieter, more rural areas of the country.
New home construction
Simultaneously, home builders have paused new constructions.
This pause is mainly because many building materials are not being produced due to a lack of a skilled workforce to generate the inventory. The laborers they do have are also still attempting to catch up with the orders placed during the pandemic.
At one point during the pandemic, more people were completing home improvement projects than previously. The lumber industry, in particular, couldn’t keep up with demand.
Now add to this equation the effects of inflation.
As a result, building supplies might easily continue being scarce and expensive, and home prices could rise further. The number of permits issued for new builds had dropped by 24% in 2020 and has not yet risen this year.
Statistics just released from the National Association of Realtors (NAR) show that the median sale price of homes skyrocketed from $274,600 in 2019 to $353,400 in 2021.
Professionals realized they could sell their city homes for a record price and move to a home with more space for less money and away from the urban hustle.
As a result, small urban communities saw a big jump in population. Many have dubbed these communities called “zoom towns.”
These locations were once considered commuter towns before the pandemic. But now, they are experiencing an inventory shortage due to the influx of remote workers.
Many of these remote workers can offer large down payments with the ability to pay over the asking price. And those who can’t are getting priced out of the market. As a result of this competitive market, bidding wars have become common in many areas.
Record-low mortgage rates
One of the most significant factors for switching to a seller’s market was the record-low mortgage rates.
Last year, mortgage interest rates averaged 2.65% for a 30-year fixed rate. This percentage is significantly lower than the average of 4.51% in 2019, only two years ago.
A large number of existing homeowners took advantage of the drop in interest rates to refinance their homes.
Unfortunately, all that refinancing means these homeowners have to stay put in their current residences—for a while at least.
The increase of potential home buyers has not been limited to private individuals.
Investors have also flocked to the housing market, taking advantage of the unusually low-interest rates to buy up available inventory.
This rise in interest also increased the competition, especially for first-time homebuyers, significantly contributing to price increases.
The effect on homebuyers
The result of these historic low-interest rates in a seller’s market is that new homebuyers are getting disappointed despite a lot of enthusiasm for buying.
There are fewer homes for sale and potential buyers are coming up empty despite, in some cases, months of searching. Those who find a house that matches their “want list” frequently get caught in a bidding war and swamped with rejected offers.
A high percentage of homes sell very fast and well above the asking price. Homebuyers on a modest budget have reduced room for negotiation or leftover cash for any necessary repairs. If those modest budget buyers decide to compromise on the features or size of their new home, then the lack of affordable homes available comes into effect.
How long can this housing shortage last?
This is not the first time a low housing inventory has occurred in history.
Normally, a shortage happens when the housing supply shrinks to only six months’ worth. After that, it typically takes four to six months to rebuild the country’s real estate market supply.
However, the pandemic has put those projections into questionable territory.
Historical models for recovery don’t apply here since the world hasn’t seen a combination pandemic/economic fallout like this in over a hundred years.
What can a homebuyer do?
Despite a lot of bleak data and projections, thousands of people every year across America still achieve their dream of owning a house.
More than ever, it’s vital to have the right people handle your mortgage or refinancing.
Working with a professional mortgage loan officer can give you the edge you need to find and purchase the home you deserve.
Homefinity is happy to answer any questions about pre-approval or refinancing and share the mortgage options available.
Please fill out our quick online application. Afterward, we can set up a convenient appointment for you, and we’ll talk through some possibilities.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.