There are many motivations to purchase a home, including the need for greater space than an apartment or the desire to increase equity through an investment property. However, Americans are currently dealing with a serious issue: there are simply not enough homes available.

Numerous factors contribute to the scarcity of housing. Continue reading to find out more about the causes of low home inventory, the effects it has on the real estate market, and how it can impact your real estate agent career.

Low Housing Inventory:

What is considered “low housing inventory”?

Low housing inventory, to put it loosely, is a state of the real estate market in which the number of persons seeking to buy a home is less than the number of available houses on the market. For individuals wishing to purchase a home, this supply and demand mismatch may result in increased pricing, bidding wars, and other difficulties.  

Why the housing inventory is low

A scarcity of real estate inventory can be caused by a variety of circumstances. Among them are a few of them:

COVID-19 Pandemic

The COVID-19 epidemic has resulted in various interruptions to the housing market. Due to the virus, retailers and warehouses around the country had to close, which delayed the supply chain and created a labour shortage.

During this period, the price of timber also increased significantly; although costs have since dropped, they are still higher than they were prior to the epidemic. Fewer homes were constructed as a result of the higher cost since some developers chose to postpone their projects until prices dropped. Even if a lot of fresh development builds have since started again, the effects of that break are still evident today in the absence of  today with the lack of new homes available.

Economic

As they say, "What goes up must come down," but interest rates have been rising for a while now and show no signs of stopping. When the COVID-19 epidemic hit at the beginning of 2020, interest rates were at an all-time low. This created a massive seller's market where buyers had to deal with bidding wars and having their offer be one of several made on a new house.

When the Federal Open Market Committee implemented the first of many interest rate hikes in March 2022, the situation swiftly swung around. The average rate on a 30-year fixed-rate mortgage is slightly over 7% as of May 2023. The market may be discouraged by such a high interest rate for both buyers and sellers. Purchasers do not desire to make larger monthly payments, and potential sellers may decide to hold off putting their home on the market so they can hold on to their current, much lower, interest rate. 

Properties for investment

The belief that real estate is a wise investment has persisted for a long time. Housing is one of the few investments that nearly constantly improves in value, even when demand for it may vary in other areas. Due to this, investors are buying houses on the market at a startling rate.

Low housing inventory implications

There are advantages and disadvantages that a housing scarcity may bring to the real estate sector. Positively, a low housing inventory can result in a seller's market because there will be a greater demand for the available homes. Home values may rise as a result, giving sellers a good profit to add to their equity and wealth. The construction sector may also be stimulated by a shortage of available dwellings.

Reduced supply of available homes raises demand, which in turn encourages developers to start new projects, thereby stimulating the housing industry and creating jobs.

Sadly, it can be challenging for individuals and families to buy their ideal home due to a lack of housing options. There are fewer homes that can accommodate their wants, needs, and—possibly most importantly—budget when there is a low housing inventory. When buyers do discover a suitable property, there is more competition because there is a limited supply of homes. To get their offer accepted, they could engage in bidding wars or feel pressured to forego inspections or contingencies.

Limited housing choices may also have an impact on the rental market. It may become more difficult for renters to obtain cheap accommodation if there are fewer available properties, as this could raise rental costs.

Higher Commissions

In another connection, higher commissions are frequently the result of sellers and buyers needing the assistance of real estate agents to negotiate a limited inventory market. As we've already discussed, a shortage of housing increases demand for residences, which drives up costs.

A commission, often calculated as a percentage of the entire sale price of the home, is given to agents. A real estate agent's pocketbook when a sale closes is enhanced by higher home ticket prices.