The housing market has cooled since the intensity of the post-pandemic real estate rush, but the seller’s market we experienced has left us with plenty of discussion about what the nation’s housing inventory looks like. Do we have enough houses to meet buyer demand, or will seller listings continue to be snatched up before they hit the market?
The state of the housing inventory involves a variety of factors, but most experts agree that we’re currently low on homes considering the amount of people who want to buy them. We’ll evaluate what’s happening here and what trends may appear.
Why Is U.S. Housing Inventory So Low?
The housing market may be slowing a tiny bit with the recent increases in interest rates, but people are still buying at a steady pace. According to the S&P CoreLogic Case-Shiller Index, prices rose on average 19.7% in May.
Some experts think the housing market is on a self-correction course and prices and demand will balance out soon. Others argue we won’t see price stability in the long-term until we build more housing. Here are some things to be aware of as you move into the last part of 2022 and a new year.
1. Ripples from the Great Recession
In 2008, many people lost their homes when the housing bubble burst. Approximately 10 million people faced foreclosure and the value of homes dropped around 33% or more. It takes a long time to recover from such a hit — many still feel the effects. Fewer homes were built after the recession as builders reeled from lower demand.
2. Need for New Construction
Thanks to the low interest rates of the last few years, there’s a surplus of homeowners. They spent more money than they otherwise would have because they could get more bang for their mortgage payment by building a larger home.
Now that interest rates are rising, there’s a true lack of affordable housing for buyers. According to Freddie Mac, there is a 3.8 million unit housing deficit at the moment. There aren’t enough homes built to meet demand. People have little freedom to move around because of the challenges of finding a new place to live.
Realtors are working with home builders more than before by showing clients some of the model homes on the market. Those who can wait for construction may find the idea of building their own home the way they want quite attractive.
3. Construction Workforce Concerns
Unfortunately, there is also a lack of workers in the construction industry. The field has long struggled with a labor shortage due to a high demand for labor but low supply of workers with qualifications in the building trades. While often high-paying, these jobs can be physically demanding and aren’t seen to be as “stable” or as respected as white-collar work.
Today, labor shortages are starker thanks to the worker-friendly state of the economy. The Great Resignation meant a lot of people started their own companies or found higher-paying promotions in their field. Workers are able to demand more of a salary and construction companies can struggle to keep up.
Why It’s Hard to Meet Housing Inventory Needs Right Now
It’s true that our housing supply hasn’t been growing at a pace with population needs. The obvious solution would be to keep building more — right? However, construction companies still need to make profits. Some builders are reigning in their efforts to create new homes or restore old ones because of interest rate increases.
Why? They expect demand to drop as higher rates push people out of the market. There’s a fine line between offering enough housing and risking your neck financially to build something that might not offset the initial costs.
Of course, not all housing needs to be new construction. There is some light at the end of the tunnel as people look to renovate older buildings to repurpose as modern housing or bring back to their former glory. Rather than letting an older building fall into disrepair, developers can restore what’s already there. Usually, the restoration cost and time to bring it to market are less than new construction.
But renovations probably won’t be enough, especially in populous cities with high demand. Long-term building needs don’t always align with the economic short term. The country needs more houses to keep up with growth, but construction is stalling and labor is hard to come by.
How Do You Find Supply Where There Is None?
Real estate industry experts and lawmakers are seeking potential solutions to the housing shortage. When it comes to national, state and local policy, some ideas include:
- Building more multifamily housing options in our biggest cities. Young people flocking to cities like New York and San Francisco for job opportunities need somewhere to live, and density can help keep price competition low.
- Allowing alternative buildings. Tiny houses and mother-in-law suites can provide great real estate options for the right household. Small square footage can be an excellent option for young adults wanting to buy a home on a tight budget. However, some areas have zoning that won’t allow for smaller builds.
- Encouraging repurposing of abandoned factories and office buildings.
Of course, real estate professionals and their clients can’t wait for perfect conditions. For the time being, buyers and their agents looking for an edge in a seller’s market should be prepared to work hard. Using connections to find houses that haven’t hit the market yet, preparing to move with urgency when you find the right home and being aggressive with offers can help.
If you want to find inventory to list, you have to get creative and think outside the box. You also should be proactive in reaching out to people. Keep in mind — the market has a lot of highs and lows. The shortage will improve with increased interest rates.
Find Patience During the Housing Shortage
You can bide your time until the perfect house comes on the market for your client. The key is to communicate with anyone you’re showing homes to. Let them know inventory is low, but you’re checking every day. Text, email or call them occasionally to encourage patience as you search for their dream home.
You can’t control how many available homes there are, but you can keep an ear to the ground and be as proactive as possible. Over time, and with good policy, the housing shortage should sort itself out — and you’ll be ready to hit the ground running.
About the Author: Evelyn Long is the editor-in-chief of Renovated, an online resource for the real estate market. Her freelance writing has been published by the National Association of REALTORS®, Insights for Professionals and other prominent industry magazines.