Where Did All the Houses Go? 

Where Did All the Houses Go? 

The inventory of homes for sale right now is crazy low. The pandemic is definitely part of the reason, but it's not the whole story. Let's dive in and find out what exactly is causing this shortage.

According to a report on CNBC, so far in 2021 there were 207,000 homes that should have been listed across the country, that were not. There is definitely a record shattering decline in the number of homes for sale, or what we call the inventory.

It's the result of years of steady erosion; this didn't happen overnight. It's just that it's worse now. The shortage has certainly accelerated. The number of homes available for sale has dropped dramatically. So, where have all the houses gone? And why?

The Pandemic is Partially to Blame

The pandemic has certainly caused some of this. I'm sure we've all heard or thought, "Who wants to sell a house in the middle of a pandemic? Who wants a bunch of strangers trampling through the house?" There is certainly a part of the population that just doesn't want that, so they just have not even considered putting their home on the market.

A lot of home owners are baby boomers, and they are a group of people that are at a higher risk in this pandemic. A good amount of them just weren't coming to market out of an abundance of caution. To be clear though, these folks aren't the only ones who think and feel this way. They just happen to be the largest portion of the home owners that might have listed but did not.

The Vicious Cycle of Low Inventory

Another contributing factor is the vicious cycle where many people who might sell their home aren't doing it because they don't know where they'd go. They don't know that they'd be able to find a house they would buy if they sell theirs. So they don't put their home on the market because there is nothing for them to buy. Thus the vicious cycle, the downward spiral, continues with another home that doesn't go on the market because of the market. It just keeps perpetuating itself continuing to reduce the potential inventory that might otherwise have come on the market.

 

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Current Interest Rates

Another factor to consider in this whole equation is the exceptionally low interest rates we've seen over the past year. A tremendous amount of homeowners have refinanced their home loans to take advantage of these historically low rates. So these people now have a low mortgage rate and a low monthly payment, and that could be making people happy enough in their current homes that there isn't a lot of motivation for those people to sell any time soon.

The New Construction Factor

You also need to give thought to the new construction factor. In the past, home builders were building a lot of homes that fed the supply of homes for sale. There would be a lot of market homes in a wide variety of price ranges. Today, with the quickly rising cost of building materials, new construction homes prices have escalated significantly. Meaning, in the entry level and first-move-up price points, there is just isn't really any new construction happening in a lot of these areas.

Long Term Effects of Institutional Investors

Institutional investors are another thing contributing to this decline in inventory over time. Institutional investors are large companies that over the course of a number of years are buying up large blocks of single family homes and renting them out. They are not flipping these homes, they are holding them to rent. These investors have taken thousands and thousands of homes out of the real estate market that will not be coming up for sale. There could be a point where home prices get high enough that they might consider selling, but there are not current indications of this happening. They are content to hold onto these properties whose asset value is increasing dramatically.

What's Going to Change this Situation?

So what's going to change this current low inventory situation? More new construction would certainly help, but honestly I don't think that's going to happen. Certainly not in the price ranges where we really need the increased inventory.

As the end of the pandemic nears, there probably will be a few more listings come on the market, but most likely not a dramatic amount, and certainly not enough to meet the demand of all the buyers that are in the market right now.

For the foreseeable future, this severe shortage of inventory of homes for sale, I don't see it changing much. So for now, this is just the market we're in; it's today's reality. We will always continue to watch for trends and indicators that things are changing, but for now, what we see is a pretty hot real estate market.

It's unbelievably hot if you're a seller, in a really great way. If you're a buyer, you really just have to see the opportunity here is that while you might be buying a home for more than you'd like to be paying for it, you're borrowing the money at such a cheap level with the low, low interest rates that you can at least say from one perspective you got a good deal there.

If you have any questions about the real estate market, please feel free to reach out to us at 513-586-6900

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