Understanding Low Housing Inventory and Its Implications

Whether someone wants more space than an apartment or is trying to build equity with an investment property, there are plenty of reasons to buy a home. But lately, Americans are facing a huge problem: there just aren’t enough houses on the market.

There are a lot of factors that play into a housing shortage. Read on to learn more about what creates low housing inventory, how it affects the real estate market, and your career as a real estate agent.

What Is Considered “Low Housing Inventory”?

While there’s no exact definition, low housing inventory refers to a situation in the real estate market where there are fewer available houses on the market compared to the number of people looking to purchase homes. This imbalance between supply and demand can lead to higher prices, bidding wars, and other challenges for those looking to buy a home.  

Causes of Low Housing Inventory

There are many different factors that contribute to a real estate inventory shortage. Some of them include:

COVID-19 Pandemic

The Coronavirus pandemic caused disruptions in the housing market in a myriad of ways. The virus caused shutdowns of warehouses and stores nationwide, leading to labor shortages and supply chain delays. The cost of lumber also rose dramatically during this time, and while prices have decreased, they’re still not at what they were before the pandemic. This increased cost led to fewer homes being built, as some developers decided to put projects on hold until prices went down. Even though many new development builds have since resumed, we can still see the impact of that pause today with the lack of new homes available.  

The Economy

What goes up must come down, but interest rates have been up for some time, with no decline in sight. Interest rates were at their lowest at the start of 2020 during the COVID-19 pandemic, leading to a huge seller’s market where buyers had to navigate bidding wars and being one of multiple offers when buying a new home. The tables quickly turned in March of 2022, when the Federal Open Market Committee enacted the first of many interest rate increases. As of May 2023, the average rate for a 30-year fixed-rate mortgage sits at just over 7%. That high of an interest rate can deter both potential sellers and buyers in the market. Buyers don’t want to pay a higher monthly payment, 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.

Investment Properties

Real estate has long been thought to be a good form of investment, and now is no different. While other sectors may fluctuate, housing is always in need, and is one of the few investments that almost always increases in value. This has led to investors purchasing homes on the market at an alarming rate. In fact, according to a study from Redfin, investors purchased nearly one out of every five single-family homes on the market in the 4th quarter of 2021. While some investors choose to renovate the home and sell for a quick profit, many decide to hold onto it and instead turn it into a rental. This leads to a decreased supply of housing available for consumers.

Low Housing Inventory Implications

A housing shortage can have both positive and negative implications for the real estate industry. On the plus side, low housing inventory can lead to a favorable seller’s market due to an increased demand for available homes. This can drive up home prices, leading to a nice profit for sellers to help build their equity and wealth. A limited housing supply can also stimulate the construction industry. Less homes on the market causes an increase in demand, which can motivate builders to create new developments, leading to job creation, and a boost to the housing sector.

Unfortunately, limited housing options make it hard for individuals and families to purchase their dream home. Low housing inventory means there are less homes available that can meet their needs, preferences, and, perhaps most importantly, their budget. A limited supply of homes also means that buyers face more competition once they do find a suitable home. They may enter bidding wars or feel forced to agree to waived inspections or contingencies just to have their offer accepted.

Scarce housing options can also affect the rental market. Less available homes can lead to an increase in rental prices, making it more difficult for tenants to find affordable housing. This can particularly affect low-income individuals and families who may rely on the rental market for housing.

Navigating a Low Inventory Market

A shortage of available homes on the market can affect both experienced and newer real estate agents entering the field. Some of the ways in which a low inventory market can impact real estate professionals include:

Limited Inventory Options

The most obvious disadvantage the housing shortage presents to real estate agents is the lack of properties to show your clients. This can end up frustrating potential buyers who end up deciding to wait to purchase their dream home until the market stabilizes. Instead of giving up, however, this could motivate real estate agents to improve their research and networking skills. Constantly monitoring the multiple listing service and making meaningful connections with other real estate professionals can help agents find properties they might not have otherwise known about to show to potential clients.

Increased Demand for Services

A housing shortage can lead to increased competition among buyers. When properties receive multiple offers, it can be overwhelming for both the seller and the buyers, which may lead them to turn to a knowledgeable real estate agent to help them with the sale. Hiring someone who can evaluate and compare multiple offers, quickly communicate, and handle the negotiation process from start to finish can make the home buying process easier for sellers and buyers alike.

Higher Commissions

On a related note, the increased demand for the services of real estate agents to help sellers and buyers navigate a low inventory market can often lead to higher commissions. As we’ve mentioned, insufficient housing means a higher demand for homes, which in turn, leads to higher prices. Agents receive a commission which is generally a percentage of the total home sale price. Higher home ticket prices put more money in a real estate agent’s pocket after the deal closes.

The best way to learn how to navigate low housing inventory as a real estate agent is with a trusted online training provider. AgentCampus by 360training can help you on your professional real estate journey right from your own home.

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