Most home buyers feel defeated while searching for their dream houses since the inventory has decreased in the past decade. As a result of the lowered listings, the competition and the pricing have risen with the demand.
We can look at an analysis of the housing market over the years to check its development. Unfortunately, the housing supply has fallen lower, and real estate investors have a hard time finding suitable properties. Price increases are not the only reason for the housing inventory shortage.
What does low housing inventory mean?
Housing inventory is calculated by the sellers' number of houses listed on the market. The inventory level hit its lowest point in 2021 as we can see from the statistics. The results still don’t show much improvement today, moreover, 2022 seems to be a worse year for home buyers if we look at the pricing increase and the inventory decrease.
Various reasons could have caused such disappointment for buyers in the US. to understand the grounds a little better, we can dive into a discussion of the topic and list several causes of the market crash.
Are we in a housing recession?
The answer to this question might vary depending on the side we choose to look at when it comes to the topic of our discussion. To be more clear, existing homeowners are not facing a recession. Further, they have the convenience to own a high-value property and, therefore, have privileges in the real estate market.
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However, home buyers are in a pickle, as they have trouble finding the real estate to their preference. The lower number of listings suggests that we are in a housing recession, caused by the lowered number of house sales and construction imbalances.
How does low home inventory affect the housing market?
The low housing supply has a direct effect on the real estate market. When the interest rates for real estate rise and the home inventory is low housing prices are bound to rise. Mortgage interest rates are being affected by this transition as well.
Existing home sales might not cover more affordable communities, limiting buyers' options. Rising interest rates allow existing homeowners to raise their home values. Potential sellers are taking advantage of the shift, so if a buyer is searching for a new home, they should expect to pay a high price.
Is there a housing shortage in the US?
The lowered building supplies can also cause the housing recession. The shortage of new homes around the US reduces the housing inventory. There have been fewer constructions in the past few years, therefore, a housing shortage is unavoidable.
Competition between home buyers and investors
Home buyers have it difficult since they compete within their group, caused by the lowered housing inventory and raised demand. The investors are furthering this issue.
Ever since the pandemic investing in property management has become a popular business and many investors are planning to purchase real estate and prepare to join the rental property market. Property management companies have received their share of appreciation as well.
Investment companies try to get a hold of as many sales as possible to attract tenants with a wide range of options. Considering the companies' privileges and budget, they have bigger chances of purchasing real estate than the buyers causing the housing inventory to lower even more.
Legal and bureaucratic obstacles
The real estate inventory shortage can also be explained by the legal issues that home builders frequently deal with. Construction companies must live up to specific requirements to be granted permits.
Builders ought to deal with the construction policies and legal systems. Construction companies try to build homes around the country to achieve success among competitors. One crucial point to be considered is the variety of laws and their differences in different states.
Rising material costs
Building materials have been raised in value. We can name inflammation as one of the grounds for such price increases. We can check the currency rates to review the country's economic situation. The results have been quite disappointing since the pandemic broke out back in 2020.
Due to quality and production rates, construction companies often purchase building supplies from European and Asian manufacturers. Each country produces a certain product, materials for which can only be found in their areas. For example, Italy is leading in the ceramic industry. Still, the competition has been growing since Spain and Turkey have successfully managed to get involved in the business, and the prices have reached a high point.
Shipping costs don't make it easier for construction companies to operate either, but more on that later.
Chronic shortages of skilled labor
Employment has become a huge issue for construction sites. Many job seekers tend to search for intellectual jobs rather than physical ones.
A shortage of skilled labor has always been present, however, these days self-employment has become quite popular among the younger generations. Therefore, there are fewer people seeking jobs at construction sites. Moreover, the people that do search for construction jobs, don't have much experience in the field.
Sellers aren't looking for buyers
The housing market shortcomings can also be caused by the lack of sellers searching for buyers. Sometimes, homeowners put up a sign to show home sales, however, they are rarely interested in hiring real estate agents.
Real estate sellers don't always invest in real estate management companies. Some homeowners think that putting up an advertisement on a website is enough to sell their property. This causes issues because not all buyers look on the same platform.
House buyers should not be the only ones searching for homes, to sell a house at a reasonable price, the sellers need to put their energy into the process. They must reach out to real estate agents and try to find buyers themselves.
Sellers aren't listing during the Pandemic
The pandemic breakout is still new, and homeowners are afraid to put up their homes for sale. Largely, this is caused by the assumption that the lockdown could be declared again sometime soon.
Sellers don't want to give up on their homes for sale and join the buyers' list, because the competition is very high. Low housing inventory scares a lot of the existing homeowners. They don't wish to exchange their existing homes for a large competition.
Finding a house with the right equipment and acceptable prices in affordable communities is difficult. We already covered a lot of the issues with the housing market. The sellers know that the buyers have limited options. Record low-interest rates don't allow homeowners to list their real estate.
Considering mortgage interest rates, low housing inventory, home prices, and lending services provided sellers would rather keep their homes for now. Therefore, the current sales pace stays slow.
Buyers have fewer contractual protections
Legal policies are very important in the housing market. Buyers need to make sure that they are secure while signing the contract and they are getting their money's worth. Considering home prices, the risk is high.
Mortgage interest rates don't make it any easier for buyers. Contracts often limit buyers' ownership of the property before the full price is paid. Therefore, the buyers have a hard time making the finalized decision.
Seller's markets
A seller's market means that the inventory is extremely low compared to the demand, so the sellers are at an advantage. The homeowners can raise prices for their real estate as much as they'd like when there's little competition.
Homes are more expensive
As we already covered, the sellers are allowed to raise home prices due to high demand and little competition.
Low housing inventory has affected the prices greatly. A lot of the homes for sale are bought by investors these days, allowing homeowners to profit from selling to corporations. The sellers are taking advantage of the property management industry.
In the end, homes have become exceedingly expensive, and their value has risen. There are fewer homes to be found at affordable prices.
The shift in Demographics
Studies show that certain age groups have fewer home buyers among them than in the past. In 2003, there were up to 400 thousand buyers of the ages 30-35, whereas in 2013, there were fewer than 150 000 home buyers of the same age group.
Typically, there are more home buyers around the ages of 35-45, thus a shift in demographics is expected to affect the housing inventory and the demand. Since not many of the people in these age groups own homes, there are fewer sellers.
Increased migration
With the large wave of migration, the demand for housing inventory increases. More people are looking for houses. Many of the immigrants prefer to stay in rental properties, giving the investors more of a reason to invest in real estate, with this the discussion circles back to the issue of investors competing with home buyers on the housing market.
Construction has slowed down
One of the issues mentioned above is the lack of construction and new buildings. In this topic, we mentioned the shipment of building supplies. Due to current political events, shipping building materials from Europe takes longer than usual.
Moreover, the high mortgage rates make it difficult for construction companies to sell properties. Because of this, they try not to invest in future buildings that might end up too risky for their businesses.
When will the housing supply catch up with demand?
Considering the points made above, we shouldn't expect the housing inventory to catch up with the demand during 2022. Prices seem to be rising even more monthly. The housing supply is still running short, we can only hope that the economic situation can be fixed, and the mortgage rates can be lowered. If more homeowners can risk selling their houses to buy new ones, and more buyers can afford homes in nice communities, the housing supply could catch up with the demand over the next few years. However, disappointing it may be, 2022 is not going to be one of those years.
