Tips and guides on how to buy your next home

Home Buying Guides & Tips

Inventory is a big problem in real estate. Just about everyone complains there are not enough homes to sell, but are such complaints true? And do inventory worries actually mask supply benefits for investors and property owners in general?
Real estate inventory means the number of homes available for purchase each month. The idea is that with steady demand, more inventory causes home prices to ease while less inventory pressures prices to go up. And lately, of course, we’ve seen a lot of price growth and not a whole bunch of inventory.
Alternatively, maybe the relationship between inventory, prices, and unit sales is not so straightforward. Perhaps more inventory – if you can get it – does not inevitably lead to lower prices and better affordability.
Consider, for example, what happened between August and November, the latest month for which we have figures.
<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="900" height="261" src="https://www.realtytrac.com/blog/wp-content/uploads/sites/2/2022/02/housing-inventory_v2.png" alt="" class="wp-image-21426" srcset="https://nationsinfocor.wpengine.com/wp-content/uploads/2022/02/housing-inventory_v2.png 900w, https://nationsinfocor.wpengine.com/wp-content/uploads/2022/02/housing-inventory_v2-768x223.png 768w" sizes="auto, (max-width: 900px) 100vw, 900px"></figure>
What the numbers tell us is that inventory declined between August and November, there were fewer listings. With steady demand, that should mean fewer sales and higher prices. What actually happened was that sale activity went up, price increases slowed, and actual prices fell by $2,800.
Did everyone who wanted to buy a home find a property in 2021? Of course not, but this is true in every market. There are always potential purchasers frozen out because of such factors as insufficient income, excess debt, and rising mortgage rates.
Inventory is just one of many factors impacting the ability of purchasers to buy a home. Given that expected annual sale volume increased by more than 575,000 units in just a few months, whatever the inventory problem is a lot of buyers have overcome it.
<h2>Inventory vs supply</h2>
Inventory tells us how many listed homes are available. With steeply-rising prices during the past two years, there is reason for owners to sell. However, many owners also have reason to stay put. Selling creates the need to find a replacement property. That may not be easy in a market where multiple offers are common and bids over asking prices are routine. No less important, we’re still in the midst of a pandemic economy. A strange and deadly variant can arise at any moment, threatening jobs and incomes and making the marketplace murky and unclear.
<h2>Underbuilding</h2>
Supply differs from inventory. There are lots of homes not for sale. There are also homes not listed on local MLS systems but available for sale. For 2021, NAR estimates that 7% of all transactions were by self-sellers with another 3% outside the system. In rough terms, that’s about 700,000 units per year not shown as inventory.
How many housing units do we really need to fill demand?
<ul>
<li>Freddie Mac says we need “enough housing to meet demand, plus a target vacancy rate of 13%, which allows for homes to be available for sale and for rent.” By this standard, Freddie Mac estimates that we need another 3.8 million units.</li>
<li>Realtor.com says there’s “a shortage of 5.2 million new homes in the wake of a decade’s worth of underbuilding.”</li>
<li>A report by the  Rosen Consulting Group for NAR estimates that “the underbuilding gap in the U.S. totaled more than 5.5 million housing units in the last 20 years.”</li>
</ul>
The housing shortage – as opposed to a lack of listings – has important implications for real estate owners.
According to Rick Sharga, Executive Vice President with <a href="https://www.realtytrac.com/">RealtyTrac</a>, “it’s very clear that we will not be able to quickly address housing scarcity. One reason is that we have a massive worker shortage. In November, the Bureau of Labor Statistics said there were 345,000 job openings in the construction trades, a huge number.”
<h2>What about the future?</h2>
While limited supply doesn’t guarantee rising values, it’s one factor that can lead to higher pricing.
In October, a report by <a href="https://www.goldmansachs.com/">Goldman Sachs</a> analyst Ronnie Walker said that “of all the shortages afflicting the US economy, the housing shortage might last the longest. Earlier this year, we argued that constrained supply and sustainably robust demand would keep the US housing market very tight, pushing up home prices and rents sharply. The boom since then has surpassed even our lofty expectations, with home prices now up 20% over the last year.”
Is there a way to grow home production and increase supply? Maybe. According to Walker, “economic research shows that relaxing the zoning rules and other regulatory constraints that have impeded homebuilding for decades would boost supply and lower prices and rents. But in practice, this has been difficult politically.”
Some states have already begun to change zoning laws, to allow more construction on lots once reserved for single-family homes. The Biden White House has come out in favor of zoning modernization. And another approach – automated construction – appears to be picking up speed. Zoning changes and automation are long-term solutions to the supply shortage. In the shorter term – for the next few years, at least – look for supply issues to remain with us and impact home values accordingly.

Suburb in Fastest Growing City in America outside of Austin - Pflugerville , Texas

Resources for purchasing property and homes

Home Buying

Construction Site of New Homes

What to Know About Buying a Second Home

home-selling-stress

What’s More Stressful: Buying Or Selling A Home?

Luxury Home

What Type of Home Do You Live in? We List The Most Common Property Types

Abstract blur supermarket

Should You Buy Investment Real Estate Where You Shop?

When Will the Housing Supply Shortage End?

Zoning changes and automation are long-term solutions to the housing supply shortage. For now, supply issues will remain with us and impact home values.

When Will the Housing Supply Shortage End? - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2023/07/housing-1.jpg

Resource

RealtyTrac

https://secure.gravatar.com/avatar/c279332f7e9e71c37fe1ba88ce73d9ca?s=96&d=mm&r=g

A few quick tips to considering when purchasing a new home.

What to Know About Buying a Second Home - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2023/07/iStock-482361158-1.jpg

Manuel is an expert in all things real estate, including buying and flipping homes.

https://secure.gravatar.com/avatar/bde61d121d9d8df1cdb5a8525b1cb5c6?s=96&d=mm&r=g

Manuel Martinez

top-10-states-featured-image

Market Reports

RealtyTrac Investor Purchase Report – Winter 2022

The RealtyTrac® Investor Purchase Report analyzes home sales data from ATTOM Data Solutions to determine the share of single-family home sales purchased by investors as both fix-and-flip properties and long-term rentals; the average price discount of investor-purchased properties; and the share of all-cash sales among investor purchases. The data, which is analyzed quarterly at both […]

RealtyTrac Investor Purchase Report – Winter 2022 - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2023/07/top-10-states-featured-image-1.png

Detailed guides on various real estate financing methods.

Financing Guides

The Painted Ladies of San Francisco, California. USA.

Financing

Coin stack step up graph with red arrow and percent icon, Risk management business financial and managing investment percentage interest rates concept

A Guide to Foreclosure Financing and Refinancing

Buying a home

Financial Planning Is Key To Prevent Your Home to Go Into Foreclosure

California Real Estate – New Zoning Rules to Make Homes Affordable

California is losing population & leading companies often to Texas due to home prices. However, it just changed zoning rules to make homes more affordable

When Will the Housing Supply Shortage End?

$214,900

$37,100

$10,500