Housing inventory is low - why?

Question

Just throwing this out there to hear peoples opinions. I don’t know the answer myself, that’s for sure. Everyone is always talking about housing inventory being low. 18 months ago my husband and I drove across country from west coast to east coast on Highway 10and then drove home on Highway 40, so we drove through quite a few states and made a lot of stops along the way. One thing we couldn’t help but notice was the vast amount of home building going on in every state we drove through. We kept noticing and remarking on it. Lots of single family homes, townhouses, apartment complexes. Like nothing I’ve ever noticed before. So why is there low inventory?? I had also heard that last year the population of the USA actual declined! So what gives? It just doesn’t make logical sense to me based on what I’ve seen.

Karla Simmons · Answer

@Adam Martin

I do believe scarcity is a state of mind too.

Jeremiah Dunakin · Answer

My first post but here is my .02$1.Intrest rates are going up. We are in the process of buying our first rental. My loan officer who is handling it said he would love to handle our primary as well, however he said said he couldn’t even come close to our 2.6%2. The market is so high. Again we looked at moving but to get a comparable house to ours now would literally be 1.5 times we paid for ours. Factor in the above mortgage rates and you are getting basically same house for twice as much.

3. I haven’t seen in my area anyways a lot of building. My self and guy I work with both put off build roughly 30x30ish garages because building materials are through the roof. 2 years ago I could get a 2x4 for 1.77 now it’s almost 9$. That 7$ difference adds up real fast when you factor in buying a 100 of them. That’s just 2x4s not to mention nails,screws, drywall.

4. There is a lot of uncertainty with the climate in which we are operating in. Not trying to be political at all but there is an uneasy feel in the air. The uncertainty causes people to stay in the certainty that they already know.

5. There is a perception right now that it’s a seller market and good luck if you are buying. It makes people not even want to look.

Theresa Harris · Answer

You also have a lot of people who own a second home (not for rentals, just for them to get away on the weekend) and more people are living on their own.  So rather than one house for a family, you may have two (weekend get away) or three (if the parents are not living together and one has a weekend home).

Nicholas L. · Answer

@Karla Simmons I think this is a great question because I agree with you... it certainly seems like there is a lot of development happening!  But... these big new SFH developments, which tend to be at higher price points, don't seem to be contributing meaningfully to supply.  There just aren't enough of them.  And I just don't see new developments of SFHs in any markets that are meaningfully below the median home price for that market.

I don't believe the US population as a whole has fallen in any year... but it is growing more slowly!

https://www.census.gov/newsroo...

"...the population of the United States grew in the past year by 392,665, or 0.1%, the lowest rate since the nation’s founding."

Bill B. · Answer

Last year we built 900k houses, but we added 3million people (so if there’s an average of 3 people in every house we added zero inventory last year…)

https://usafacts.org/articles/...

In the last 8 years we built 7 million new homes (900k per year, ps we built 50% more per year in the 70’s) BUT, there were 12 million new households, so we built 5 million less homes than we needed over the last 9 years.

https://www.cnbc.com/2021/09/1...

If we secure the borders, stop taking in immigrants, convince millennials they shouldn’t have kids, convince young people that college is a waste of money and they should go in to the trades building us homes as the older workers retire, get a handle on inflation without raising interest rates and convince people like the poster above that they should sell their home with the 2.5% mortgage and buy a new home with a 4.5% interest rate, the inventory problem will take care of itself. :-)

Oh yeah, and kick all the local and state governments out of power that won’t let anyone build in their neighborhood and infringe on “their lifestyle”, especially affordable houses on smaller lots. Find the most expensive places to build and tell me who’s in power there.

Michael Hill · Answer

I agree with these first 2 points from Patrick. The construction of new homes has not been able to keep up with demand for almost every year since the housing market crash in 2008. This is partially because so many home builders went out of business during the Great Recession, and there haven't been enough home builders to fill the void in the following years when more homes were needed. Another reason is that Millennials, which is the largest generation (including approximately 72 million Americans), came to the home buying age and started buying homes in droves.

Patrick Daniel · Answer

There are two tools the government has to control affordability (whether or not that should be their job is another conversation). 1. The one everyone knows and talks about: Interest rates and total cash liquidity in the market (buying and selling of bonds).2. Which I believe we will be seeing sooner rather than later, is the increased length of amortization in fannie/freddie backed mortgages.

The idea of a 40-year loan mod has already been recommended for those that ran into COVID-related payment issues. I think that rather than prices adjusting, folks will just have the option of a 40-year mortgage within the next 5 years.

Karla Simmons · Answer

@Jeremiah Dunakin

I’m continuing to see houses being built but I’m not sure who can afford them, especially with the interest rates going up. I myself am thrilled with the rate we pay for our primary house and we aren’t going anywhere (for now at least). I’m wondering if home builders are going to be able to sell these all of these new homes. We shall see!

Adam Martin · Answer

I see a few reasons inventory is low but really who knows.

1. The biggest issue I see is not as much as inventory as a number but the type of inventory.  Sure there are houses and apartments going up all the time however they are far from what I would call starter homes.  In my area you are looking at 350 minimum but most are closer to 450-500k+ which just isn't affordable for someone starting out which puts upward pressure on the limited stock of starter homes driving up prices.  The same with apartments, the new ones are luxury apartments with rents nowhere near affordable for lower income individuals.

2. My father in law is a loan officer for a major builder and he says their biggest struggle is finding good and reliable contractors to build the homes.  There just aren't enough people willing and able to do the work which is slowing down building.  Add in increased building costs and scarcity of materials and there just isn't enough resources to keep up with demand which also increases prices.

3. A good friend at work just got a sizeable raise and would like to move closer however she can't justify it to herself to move.  She is locked into a 2.6% interest rate that she just can't bring herself to let go of and it will only get worse as interest rates continue to climb.  I think increasing rates are going to trap people into their current living situations as families in starter homes are going to get priced out of upgrading and seniors that historically choose to downsize aren't going to want a smaller house with a larger payment.

4. To an extent scarcity is a state of mind driven by marketing.  While there isn't a lot of houses sitting on the market most everyone looking to buy is currently housed somewhere.  I am guilty of this as well but if there is enough "news" that rates are going to keep climbing and prices are going to continue to climb people get FOMO and will not always act rationally and overpay.  This is great for certain businesses such as realtors, banks, and REITS who make more as housing prices go up which may motivate them to drive the narrative.

Karla Simmons · Answer

@Patrick Daniel

I see your points. That should mean that a lot of apartment complexes are going to have vacancies they can’t fill. It’s interesting!

Housing inventory is low - why?

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