The biggest story in real estate news continues to be the historically low inventory of homes. The number of houses on the market has dropped dramatically and consistently for almost a year now and shows little sign of changing. Most analyses of this unusual situation focus on the high demand. But what about the supply side?
At the outset, it should be stated that the factors that have been driving up demand for homes for the last few months remain. Interest rates are still at historic lows, and mortgages as affordable as ever. The cultural shift of telecommuting and continued lockdowns is also increasing the demand for extra square footage and a bigger backyard. These trends will continue for the foreseeable future and have been widely reported on.
This week, an in-depth report from the New York Times delves into the factors contributing to low supply of homes. Demand is high to be sure. But for a plethora of reasons, homes that would be entering the market in a normal year simply are not. Currently there are only 468,000 homes for sale in the entire United States, almost half of what it was a year ago.
Some factors contributing to the low supply are directly related to the pandemic. Few people would want to show their house to strangers in the midst of a global health crisis. This is especially true of older, at risk populations. Many baby boomers who would be looking to downsize are simply staying put while COVID lasts. On a similar note, remote work has grown significantly in the last year, and many workers may never return to the office full time. But while COVID is still a threat, many telecommuters are still in the dark as to what their workplace will look like in 6 months and so are also staying put.
With so much uncertainty looming in general, many homeowners are choosing to avoid the headache of getting involved in the current super-hot housing market. What is more, federal relief has allowed for mortgages to go into forbearance until June. This has prevented many homes from going back on the market due to foreclosure.
Another thing to consider is the rise of investment homes. Companies like Airbnb and Vrbo have made real estate investment lucrative in new ways. With mortgages so low, it is a lot more affordable to hold onto and invest in a couple extra single family homes instead of selling them.
Building is another contributing factor. The construction industry was hit particularly hard in 2008 and has struggled to catch up in the last decade. This combined with a shortage of lumber in 2020, has caused the construction of new homes to lag.
The variety of experts cited in the New York Times piece agree on one thing: the national housing market is really, really weird right now. There is a dazzling array of factors on both the supply and demand sides of the market, some brand new others going back over a decade. Overall, it is very difficult to get a grasp of what exactly is going on or come up with a unified model.
With such low inventory comes other problems. In many major metro areas, the price of homes is rising dramatically, while rent actually goes down. Experts believe this may be an early indicator of a housing bubble starting to grow.