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Main Reasons Home Inventory Is Low

7 More Reasons Why Home Inventory Is Low

Despite the high demand for homes, inventory is low and continues to below. In this article, we’ll go over the main reasons why finding a home for sale is becoming increasingly hard.

In This Article:

  • Why Is Home Inventory Lower Than Low?
  • What Effect Has COVID-19 And The Pandemic Had On Available Inventory?
  • How Will The Housing Market Respond To The High Demand For New And Existing Homes?
  • Will Inventory Be Low For The Foreseeable Future?

One of the biggest challenges in the current real estate market is home inventory. In the past year alone, there have been more homebuyers searching for homes and fewer homeowners looking to list their homes for sale under the current conditions; and thus, the market has been tipped in the seller’s favor for some time now. Moreover, as we make our way through the first few months of 2021, it is clear that inventory is still low and demand is higher than ever.

Overall, according to the National Association of Realtors, the total housing inventory is down by more than 18 percent compared to previous years. That said, it is evident that the new housing supply is not keeping up with the current demand for several reasons.

1. New Construction Has Slowed Down

Since the housing bubble burst in 2008, there has been clear growth in population and demand, yet at the same time, new construction has not been able to keep up. Now, in the wake of an ongoing pandemic, the lack of new and available residences has only been amplified by delays.

That said, towards the end of 2020, there was definitely an uptick in new construction, which did help to ease some of the pressure. Nevertheless, industry experts agree that builders just simply cannot build fast enough. As a result, limited housing supply has been a concern for many years, and COVID-19 continues to prove that demand will outweigh supply for the foreseeable future.

2. Demand Is Surging Because Of Low Rates

Along those same lines, in fact, the market is seeing some of the lowest mortgage rates in years due to the ongoing pandemic and the millions of people who are still unemployed. With current rates hovering just under or around 3.0 percent, many buyers are anxious to get into the market to take advantage. However, the influx of motivated home buyers and investors is only further exaggerating concerns over low inventory.

Almost everything housing-related, including new home sales, home improvement projects, and home prices, are in a V-shaped recovery.

3. Sellers Are Not Listing During The Pandemic

Many sellers are still reluctant to list their homes during the pandemic despite the FDA approved vaccine and the pending peaceful transition of power in government. The truth is that a significant number of homeowners decided to hold off and wait until more stable conditions before putting their house up for sale in 2020—a trend that many predict will carry on well into 2021. That said, there was still a surge in home sales and prices this past year. Though, there is no denying that the homeowners that were happy in their homes were more interested in their refinancing options and were more likely to take advantage of bargain-basement mortgages and other ways of lowering their monthly costs.

4. Sellers Are Looking To Be Buyers

Moreover, the homeowners interested in selling their homes during the COVID-19 crisis quickly realized that the low inventory would affect them. Clearly, everyone needs a place to live after selling their home, and finding a new home is becoming increasingly difficult under the existing market conditions. This has caused many sellers to wait for fear they won’t be able to find a home to buy if they sell.

5. People Want Homes With More Square Footage

Time spent at home during the ongoing pandemic has led many people to want more space. Yet, many people looking for larger homes or houses with more square footage are having difficulty finding one. What’s more, homeowners that are currently living in larger homes are now less inclined to sell because their square footage requirements are being met, and thus, they are less likely to be interested in upgrading.

But be that as it may, among those looking for more square footage in record numbers are millennials. In fact, for the first time, people who are between the ages of 23 to 38 are looking to buy homes in record numbers. As a result, this is definitely making an impact on the amount of available inventory.

6. Millennials Are Leading The Surge in The Purchase Market

Speaking of millennials, overall borrowers between 21 and 40 are definitely emerging as a dominant force in the real estate market and drive the purchase market forward. Analysts actually surmise that the uptick in millennial purchase activity currently is just the beginning. A true boom in millennial homebuyers is expected and will likely fuel much of the real estate purchase transactions in 2021, 2022, and 2023.  And per US Census data, there will be four million-plus adults reaching the age of 29 to 30, which is the average age when millennials enter the homebuying market. What’s more, it is not uncommon for many millennial homebuyers’ first home purchase to be a multimillion-dollar luxury home in the US or elsewhere. So, suffice it to say, it should not come as a shock that the already low home inventory we are seeing now is partly due to millennial homebuyers.

7. Increased Migration

The COVID-19 pandemic has also led many people to consider moving away from their current locations, especially those living in congested areas. The truth is as remote work becomes more popular or rather crucial, there is a trend of people being less concerned about their commute times; and therefore, a significant number are becoming more flexible in choosing where they want to live. Consequently, suburban and more rural areas have seen and continue to see an influx of potential buyers. The added bonus here is that often homes are more affordable outside of the city, which is an influencing factor as people can afford more for less.

Today’s Mortgage Rates Apr, 12, Mon, 2021

Investors Are Buying Up Inventory

In addition to the reasons mentioned above, there is yet another factor that is causing low inventory in the current housing market—investors. With interest rates remaining low, investors are chomping at the bit to buy up additional inventory. As a result, home buyers are now competing against other buyers and investors. With favorable market conditions and fewer alternative investment options, it is not too surprising that investors are turning to the residential real estate market.

Plus, with interest rates at a historically low, there are plenty of reasons for just about everyone to get involved in the housing market. For instance, the opportunity for a low monthly payment, additional upgrades, more square footage, and finding the features you are looking for rather than investing in costly renovations appeal to home buyers, sellers, and investors alike. Ultimately, there is no denying that there is a golden opportunity with the current state of the housing market. Still, it is important to be intentional and competitive in your offerings since inventory is predicted to remain low for at least several more months.

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