Crunching the Numbers: Why Housing Inventory Is Scarce in 2023

In today's turbulent real estate market, finding a home to buy can feel like searching for a needle in a haystack. The burning question on everyone's mind is, "Why is it so hard to find a house to buy?" While patience might seem like a tempting strategy, waiting it out might not be your best move. This blog will delve into the reasons behind the ongoing housing inventory shortage, providing insights into both long-term and short-term factors contributing to this conundrum.

The Persistent Issue of Underbuilding

Long-term challenge

One of the primary reasons for the ongoing housing shortage is the chronic underbuilding of homes in recent years. To understand the magnitude of this problem, let's take a look at a graph depicting new construction for single-family homes over the past five decades. It includes the long-term average for housing units completed.

For 14 consecutive years, builders failed to meet the historical average (shown in red). This extended period of underbuilding created a substantial inventory deficit. While the current pace of new home construction aligns with the historical average, resolving the long-term inventory problem will take time.

The Mortgage Rate Lock-In Effect

Short-term factor

The current housing market faces additional challenges that exacerbate the inventory shortage. One such challenge is the mortgage rate lock-in effect. Many homeowners are reluctant to sell their homes because they are holding onto historically low mortgage rates. They fear that selling and purchasing a new home might entail higher interest rates, making their move less financially appealing.

The chart below illustrates how many homeowners may be caught in this rate lock-in situation.

It's essential for these homeowners to consider their needs alongside the financial aspects of their move. Waiting for the ideal rate could lead to missed opportunities.

Media-Driven Fear and Misinformation

Short-term factor

Media narratives have played a significant role in shaping the current real estate landscape. Negative headlines predicting a housing crash or substantial price drops have instilled fear and uncertainty in the minds of potential buyers and sellers alike. However, these catastrophic scenarios have not materialized.

As Jason Lewis, Co-Founder and Chief Data Officer at Parcl, aptly puts it:

"In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt."

This fear-driven narrative has further constrained housing inventory as prospective buyers and sellers hesitate to make a move.

How Does This Affect You?

For Buyers

A limited supply of homes for sale necessitates a comprehensive approach. Consider all your options, explore various neighborhoods, and be open to different housing types. Collaborating with a seasoned real estate professional is essential to navigating this challenging landscape. They can guide you in widening your search to increase your chances of finding the right home.

For Sellers

Low inventory actually benefits sellers. Your property will stand out in a competitive market. Working with a real estate agent is invaluable in this scenario, as they can explain why selling under these conditions is particularly advantageous. Moreover, if you're selling your current home to buy a new one, your agent can keep you updated on the latest listings in your desired area.

The scarcity of homes for sale is not a new problem, and it's rooted in both long-term underbuilding and short-term factors like the rate lock-in effect and media-induced fear. Whether you're a buyer or a seller, the key is to stay informed and work with a qualified real estate professional who can provide expert guidance tailored to your unique situation. Understanding the complexities of the current housing inventory challenges is crucial to making informed decisions in today's real estate market.