The Inventory Issues that Will Save Real Estate

Let’s talk about the real challenge that is still hurting the industry, it’s not the rates, it’s not the agents that are listing too high, and it’s not the lenders putting people into wrong loan products like a long time ago. Those are not the issues; the true issue is something that will save the real estate industry as a whole through this really trying time for not only investors, but the average homeowner. We are talking about the housing inventory squeeze over the whole united states.

The first thing that is really the big elephant in the room is the rates are super high compared to the past three years for interest rates. They are two and half times what they were one and a half years ago, which are sitting about 6.5%. That means that someone buying a home today is possibly double the payment these days, or more. This is putting a squeeze on everyone that comes in and wants to buy a home now. It has slowed the market that was once a feeding friendzy, and put everyone on a slower pace than the 2020 to January 2022 market. It is very apparent. If it was easy for the people buying houses in the past two years with finances being tight in a household, now it is tighter.

As rates climbed the harder it was to make the affordability number work for people and buyers in the market. We are still at a stalemate in many markets and some markets there are still homes flying off the market. People are now having to either continue to rent or buy at a lot higher price point on their mortgage. Renting a home, condo or apartment is way easier to stomach for a lot of people instead of going up in a significant price. This then puts more pressure on prices and people looking to actually move from one location to another since there are less buyers willing to pay the price of the property. Less buyers means less demand for people that are out there trying to sell for a price they want to sell their property for now. This pushes more homeowners to not list their property due to the price they will get now.

The rates climbing and the rates that owners use to get and ended up purchasing it or refinanced at while the rates were low locked in at that price and now there are 85% of homeowners at a lower rate than today’s market interest rate. This is a stalemate for the people that are in a property and do not need to sell now, which reduces the inventory to the historic lows we are at today in and across America. Most homeowners do not need to sell because they have a position of plenty of equity and prices are not falling like they were in 2008. Also, the jobs report is still going stronger than it was in 2008; however, some of those jobs that are added or temp jobs or hospitality that are not going to be owning a home. This is one factor that can be watched as a real estate investor and owner of a home to make sure this does not go up significantly. These lower rates that we have had for the past three years will keep this stalemate of home sales and keep the lower inventory levels consistent.

The Stalemate of 2023 and after

We are in a raising interest rate market and there is no future in these rates to come down to the record lows they were before back in 2021 and 2022. The FED Chair keeps raising rates which are putting pressure on the bond market that is creating upward pressure on the interest rates for homes. All of this after being in a long-time span of low interest rates brings people to stay put in their home because either they have the loan paid off and if they move there is move with a high interest rate or move with a lower interest rate to a higher rate. Motivation comes from one of two things as a homeowner and want and desire or a need. Now the only people moving are the people that need to move.

The stalemate comes from the normal homeowners not needing to move anymore and only wanting a bigger home, but now not affording it. The movers are the ones that either have to tap their equity, move for a job, or move due to a family event I.e., new child, downsizing, or something else. That is the majority of sales for homes are that want and push to move up or down not a must. Now the properties that are on the market are having to adjust prices or they are selling quickly because the inventory in that area is very tight, or the condition of the home is just right.

As the stalemate continues the real estate market sees more dead listings on the market due to sellers not willing to budge on price, or not fix their home up, or not list it at all with high rates. This causes more lack of inventory and keeps the supply low for most of America. What is the reason for pricing not falling on its face. The lack of inventory on the market. This is the true hardship that the market sees for the foreseeable future. The reduced listing is causing prices to stay put and not drop.

The pricing stability

The housing inventory is what is keeping the housing prices stable. If you were to look back at dates only in 2019, we had more than double the houses, we have today on the market. That means the houses would stay on for longer and homes would not get the offer they wanted so they were either going to lower their home price or take it off the market after a while after realizing they were not going to get the price for the home. The current numbers for inventory of February 2023 in the US are 980,000 homes on the market, and back in June of 2019 there were 1.92 million homes. As there is less inventory that means property values will stay propped up and not drop as many people have predicted.

For example, back in 2009 and 2010 there was almost 3 times this amount of inventory for homes that were on the market due to the bank crisis and recession. As the pressure of more supply puts a downward force on home prices, the current inventory will keep the levels of home prices consistent even with rates being higher than the last 12 years. Everyone has been hearing stories that the pricing of homes will be falling because of rates. The only thing missing is that the inventory needs to be higher if that is the case for home prices to go down. To couple with the falling prices back in 2009 and 2010 the rates were still fairly high, so there was a massive housing shift with high inventory, high rates (that started to slowly come down), and a huge job layoff.

One out of the three things we have in our current housing market, the high rates are the only challenge that buyers and sellers see and have right now. It is safe to say that the home prices due to only rates going up will stay at the current level and not change. The inventory shortage will save the industry as a whole and will keep people from losing their homes. If there were massive increase in inventory or for the layoffs skyrocketed to 12-15% then there would be a large change, enough that the axis may change the market. Right now, there are no signs of that in the job market (even with the layoffs), and the increase in inventory is showing no signs of going up significantly.