If you’ve been house hunting in the past couple of years, it’s probably felt as though there’s a giant “no vacancy” sign hanging in the buyer’s market. The homes that do go up for sale have been flying off the market in record time (often over their list prices), and you keep hearing the same buzz phrase: “There’s an inventory shortage!”
That shortage? It’s acute. According to a report from Realtor.com, America is short by more than 5 million homes based on the population. So how did we get to the point where it’s so hard to even find a home to buy, and is there any relief in sight? Ahead, real estate experts break it down.
You can trace this housing inventory shortage back to the last recession. When the housing bubble burst in 2008, a lot of the smaller home builders went out of business, slowing the production of new homes across the country, says Isaiah Henry, the CEO of Seabreeze Management Company, a group that manages commercial and residential properties in California and Nevada.
While building slowly started to pick back up, global supply chain issues in the past couple of years blunted the progress. Price increases for building supplies like lumber and oriented strand board (OSB), a widely used structural wood paneling, are contributing to the extreme bottleneck, according to the National Association of Home Builders.
Traditionally, home builders in this country have averaged about a million homes per year—or at least they should have been, in order to keep up with soon-to-be-needed demand, says Fort Walton Beach, Florida real estate agent Andrew Iremonger with eXp Realty. In the last decade, he says, builders haven’t come close to hitting that million home per year mark except in 2021.
“Enter Millennials,” Iremonger says. “They’re the second-largest buying demographic in history, just a tiny smidge behind the baby boomers.” The average first-time home buyer is 34 years and the average millennial is now turning 35, and as they continue to pour into the marketplace, more homes are needed, he points out.
On top of all this, companies like Opendoor, We Buy Ugly Houses, as well as home investors who do fixups and renovations have taken down a lot of the available housing inventory, says David Auerbach, managing Director of Armada ETF Advisors, who has more than two decades of experience in the real estate investment trusts industry. As for the new homes that are coming onto the market, many are outside of most homebuyers’ price ranges, Auerbach says.
Record-low interest rates during the pandemic undoubtedly brought out buyers who were excited to borrow money for cheap. Eager buyers, though, weren’t met with many for-sale homes, and sellers were in some cases gun shy.
“During the pandemic, a lot of people stopped selling their houses,” says DJ Olhausen, a San Diego, California realtor with Realty ONE Group Pacific. “This was in large part due to uncertainty of the future mixed with the general public’s wish to keep strangers out of their homes [for showings].”
In recent years, older generations and “empty nesters” have been staying in their homes much longer, which means they are not downsizing as they have in the past, says Jamie Erfle, a Philadelphia area realtor with Compass and team lead with Modern Luxe.
“During the Covid shutdown, many young adult children moved back home with their parents so that extra space was suddenly needed again,” she says.
The pandemic also put pressure on the rental market in new ways.
With a good deal of the workforce working from home for the past two years, the corporate world moved into residential neighborhoods, with spare bedrooms converting into offices and dining rooms becoming workspaces, says Baron Christopher Hanson, a consultant and realtor with Coldwell Banker Realty in Jupiter and Stuart, Florida.
“Extra space that might have been rented out all of a sudden went away in order to absorb hundreds of millions of WFH jobs,” he says.
It remains to be seen how the rising interest rates will affect housing inventory.
One the one hand, the rising rates will likely dissuade homeowners from selling because they will want to keep their low monthly payments locked in, Olhausen says. “Who wants to upgrade to a new home when your mortgage rate will be 3 points higher than your current mortgage?” he says.
On the other hand, more investors will be pushed out of potentially buying into the housing market, Auerbach says.
Plus, the rising rates could sideline some buyers, meaning less competition for those who are serious about finding a home and refinancing to a lower rate down the line.
“The good news: the rising 2022 interest rates and the urgency to ‘lock in’ rates is cooling, meaning more inventory and some breathing room for buyers,” says Carolyn Gagnon, a licensed real estate salesperson with Compass NYC.
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