Why Is Real Estate Supply Still Low?

The story of the real estate market from the past 12 months is low supply. In fact, in December 2021, there was the fewest houses listed for sale on the market ever. There has never been a tighter real estate market, and this spells trouble for potential buyers still looking for that dream home. Many buyers may start to be discouraged from the real estate market because it has never been harder to find a house in such a super-competitive market. There may be some hope for potential home-buyers around the corner, but for now, buyers are stuck fighting over the same houses. Here is why housing supply is still low.

New Construction Builds Below Average

Construction of newly built homes were put on hold during the pandemic. Whether it is because of the pandemic itself, supply chain issues that ensued, of not finding enough workers, construction stalled. New construction homes starts for single-families has decreased below the long-term average due to the financial crisis we saw in 2008. There is an uptick in the amount of homes built per year, but they are still below the 50-year average. Builders haven’t been able to build enough in a  decade, cause for part of our problems in today’s supply issue. Underbuilding has caused a multi-year inventory crunch that did not start just because of the pandemic. In fact, housing inventory has been on the decline since late 2018. The pandemic just exacerbated the issue.

Pandemic Issue On Housing Supply

New builds have been below the average well before the pandemic hit. However, the pandemic came and wrecked havoc on the real estate market. The pandemic created a new issue: what having your own home truly means. People began looking at homes with new meanings, as they were thrust into positions of uncertainty. This phenomenon contributed to the surge in demand for homes throughout the pandemic. Couple this newfound need for home offices with the fact that the Federal Reserve lowered rates to record lows, supply was eaten up.

As mortgage rates quickly dropped below 3%, and stayed there for about 20 months, the housing supply that was already strained was evaporated. Within months, real estate prices shot up and homes for sale began declining to levels not previously seen. Buyers were eager to move and had the buying power to do so. This led to the surge in demand as buyers were looking for more in there home than they had before. At the same time that buyers were looking to find their safety, sellers eyes were full of dollar signs. As homeowners equity and net worth shot through the roof in the following 18 months, many decided to sell their homes. However, these sellers encountered a similar issue. . . where are we going to go when there is no houses available? This led to many people becoming renters, and subsequently missing out on more equity gains.

Results On Why Supply Remains Low

What resulted in this immense demand and urge to move? Well, as demand increases, supply decreases, and a new equilibrium is trying to be established. The equilibrium, in this case, is home prices. In fact, home prices increased at some of the fastest rates we have ever seen, as inflation also began ravaging the American consumer. Not just the supply of housing, but the supply of other goods and services has decreased. What does this mean for you, the buyer? Well, higher prices mean less overall income, even if you get a pay raise.

A recent article from realtor.com states: “Last month, the number of home listings dropped 26.8% compared with the same time a year earlier. This meant there were about 177,000 fewer homes listed in what’s already a slower month due to the holidays and colder weather. . . .”

And according to Danielle Hale, Chief Economist at realtor.com, “We expect that we’ll start to see a turnaround and inventory will stabilize and start to go up a little bit in 2022. . . . But that means we’re looking at inventory levels of roughly half of what we saw before the pandemic. For buyers, the market is likely to continue to move fast. If you see a home you like, you want to jump on it right away.”