How Low Housing Inventory Impacts The Real Estate Market

When embarking on a house hunt, something you might have to navigate is low housing inventory. This happens when the market doesn’t have many housing options available. It can be helpful to understand what this term means, its underlying causes and how it affects buyers, sellers and real estate investors.

What Does ‘Low Housing Inventory’ Mean In Real Estate?

Low housing inventory happens when the number of homes on the market doesn’t meet the demand for homes. In short, it’s when there aren’t a lot of homes available for sale. This can make it difficult for potential buyers to find homes that meet their needs. A low housing inventory can also increase home prices, which could lead to more competition among buyers.

How Long Will A Housing Shortage Last?

It can be difficult to estimate how long a housing shortage can last, as the real estate market continues to fluctuate over time based on several different factors. It could take anywhere from several months to years to rebuild the housing supply.

Why Is Housing Inventory So Low?

Since the real estate market is constantly changing, it can be helpful to understand what causes a low housing inventory so you can be aware of some telltale signs.

Higher Interest Rates

Homeowners who got a mortgage with a low interest rate will usually stay in their existing home to avoid selling or buying in a market with higher interest rates. Therefore, anytime mortgage rates increase, housing inventory might start to decrease as homeowners decide to save money by continuing to pay their current loan and not selling their home.

Investors Purchasing Inventory

Average homeowners aren’t the only ones buying homes. Real estate investors also buy up available housing inventory, whether that be a fixer-upper, a rental property, a second home or an investment property. Since real estate investors often have more financial buying power than a traditional home buyer, they can often afford more properties. This can increase competition for home buyers by further reducing the number of homes on the market.

Fewer New Construction Homes

Another major factor contributing to low inventory is a lack of new builds. New construction plays a vital role in the number of homes that are sold in a year. When builders struggle with unstable building supply costs and a lack of skilled tradespeople to build new homes, there'll be a decline in new construction homes hitting the market.

This hurts the market, and the limited housing options make it harder for buyers specifically looking for a new construction home to purchase.

Some Sellers Aren’t Listing

Savvy sellers know that the lack of available inventory will affect them once they start looking for a new home to buy after selling their own. Because of this, many homeowners who were planning on selling their homes will often hold off until the market stabilizes. Since sellers won’t put their home up for sale, the market will end up with a low amount of inventory.

The Impact Of A Low Inventory Housing Market

A low housing inventory market affects buyers, sellers and real estate investors in different ways.

Buyers

Potential new homeowners often enter the market excited but may soon end up disappointed when they realize their housing options are limited. Since there are fewer homes for sale in a low housing inventory market, buyers can spend a lot of time searching for the right home, attending showings and dealing with multiple rejected offers.

Some buyers might have to compromise on the size and features they require for their new home so they can afford the best available home. Buyers on a strict budget might also have little room for negotiation or repairs.

Sellers

A low-inventory market can also be called a “seller’s market,” but being a seller can come with its fair share of challenges as well. While sellers can sell their home faster and at a higher price, the real struggle begins when they have a limited amount of time to find a home to buy that fits their needs.

Real Estate Investors

A low housing inventory is a great market for experienced real estate investors to improve their existing property portfolios. Investors can start selling investment properties that aren’t performing as well as others. This could also be the perfect time to sell assets, recover costs and potentially make a profit sooner than anticipated.

The Bottom Line

When navigating a low housing inventory market, it can be helpful to work with a well-connected and experienced real estate agent or REALTOR^® who can save you from a lot of heartache and disappointment. Your mortgage lender can also give you guidance on what kind of properties you can purchase and for what price.

If you’ve finally found the right home for you, get a head start on your mortgage application so you’re ready to act quickly.