The demand to purchase a house from home buyers has been through the roofs ever since mortgage rates dropped to historic lows and remained near those levels. At the same time, the inventory of available homes to purchase has dropped to record low levels. The real estate market operates according to the laws of demand. Since demand has been sky high while supply has remained low, home buyers have been facing record high prices. While just as many home buyers want to buy a home, many are being priced out of the market, which is decreasing sales. Thankfully, the forces behind supply and demand seem to be turning and home buyers might start having more opportunity to land the houses of their dreams. 

Why Home Inventory is Low

There are a number of factors why the inventory of houses on the market are so low. Looking at each of the factors will help paint a fuller picture of the current state of the market and how trends are changing.

Home-Selling Sentiment

First, there has been a reluctance on the part of homeowners to put their houses up for sale over the past year. Since the start of the pandemic, the unique confluence of supply and demand has caused home prices to shoot up. This has led to actual home values increasing. Home values have increased to the point where homeowners have seen their equity grow dramatically. In fact, over the first quarter of 2021 home equity in the United States has increased by about two trillion dollars. So, even though homeowners could make a healthy profit by selling their home right now, they have been reluctant to miss out on additional appreciation. 

Reluctance on the part of homeowners to sell their homes is starting to change. In May, the number of homes listed for sale increased significantly. The number of newly listed homes increased by about 5.4% from May of 2020. This hard data is also backed up by research regarding homeowner sentiment. According to Fannie Mae, home-selling sentiment is increasing in each of the past couple months. Simply put, homeowners are becoming increasingly comfortable with putting their homes up for sale, which is adding to inventory. 

New Home Construction

Second, new home construction over the past year and a half has not been able to keep up with rising demand. Ever since the beginning of the pandemic, new home construction took a huge hit. Part of the dropoff in construction was a result of the lockdowns. As states and regions locked down to stem the tide of the pandemic, many projects were halted completely. However, once construction resumed and lockdowns were lifted, the pandemic still created other problems for new home projects. 

One of the biggest hurdles was supply shocks to necessary building materials. Different areas were under varying levels of restrictions, which meant that some supplies were not being produced. One vital supply necessary to build new homes that was in short supply and continues to be in short supply is lumber. Lumber is hard to get in large quantities, and when you can get it, it is much more expensive than it used to be. This has caused new home construction projects to take much longer than anticipated.

Thankfully, things are changing. Much like home seller sentiment, home builder confidence is increasing. New projects have been starting all across the nation in order to meet home buyer demand. It is only a matter of time before these projects start putting homes for sale on the market and increase overall inventory. 

Final Thoughts

We are in the epitome of a sellers market because of high demand and low inventory. Home seller leverage might be decreasing in the near future as inventory increases and more homes are available to purchase. So, if you are a potential home buyer and have been frustrated by the current market, your opportunity to buy a house might be around the corner. One of the best things you can do to prepare for the steadily increasing inventory is to get prequalified for a mortgage. Getting prequalified for a mortgage will help you establish your budget for your home search and let you know exactly which homes are in your price range. Also, even as inventory increases, competition for homes will still be fierce. Getting prequalified for a mortgage will let home sellers know that you are a committed buyer and that your offer should be taken more seriously. 

If you are excited about the idea of taking advantage of increasing home inventory and want to figure out your next steps to buy a home, contact us! The team at Peoples Choice Mortgage can get you prequalified for a mortgage and can help you prepare for the entire home buying process.