Is Housing Inventory Finally About to Rise?

Is Housing Inventory Finally About to Rise?

Ask just about anybody who has tried to buy a home recently: There simply aren’t enough houses on the market for every interested and qualified buyer.

Housing inventory has been – and remains – at a record low. That’s been good for homeowners who want to sell at the highest possible listing price, and tough for buyers who want access to a range of affordably-priced properties.

But after two years of persistently low housing inventory, a shift may be on the horizon. Is housing inventory about to rise? Or will other economic factors mean that the number of available homes remains scarce? Learn why some experts believe housing inventory is on the verge of an increase and others expect it to stay low for the foreseeable future.

Yes, Housing Inventory is Recovering

There are some indications that housing inventory is on the cusp of an increase. For one, surveys of prospective sellers demonstrate that about two-thirds of homeowners who plan to sell their home this year expect to list by the end of summer.

This expected influx of listed homes may represent a changed housing market from the recent past. In 2020 and 2021, the housing market was less tied to traditional home buying deadlines, such as the start of the school year or the need to move in order to start a new job.

For many people, life has now returned to normal. Going to work, sending kids to school, and the desire to tour homes in-person may result in a more traditional 2022 busy season, in which home inventory surges during late spring and summer.

At the same time sellers prepare to list their properties, buyers are beginning to grapple with increased mortgage rates.

The Federal Reserve set ultralow interest rates at the start of the COVID-19 pandemic. Now, those rates are being steadily raised, resulting in higher fixed mortgage rates. Rising mortgage rates have the practical effect of making it more expensive to purchase a home – pricing out some buyers, and raising the odds that homes sit on the market.

The final reason housing inventory may tick up is simple: It appears that more homes are being built.

Home building was low in the years after the late 2000s housing bubble crash and subsequently depressed by the COVID-19 pandemic. But homebuilding is at last increasing. Last month, U.S. housing starts (the beginning of private home construction) increased at 0.3% – an unexpectedly robust rate that could signal a home building boom.

No, Housing Inventory Will Stay Low

For all the reasons to be optimistic, a rise in housing inventory still faces stiff, substantial headwinds in 2022 and beyond.

To start, supply-chain issues continue to throttle new home construction. Basic building materials, most notably lumber, have been hard for homebuilders to obtain and afford. Homebuilders have also struggled to attract and retain skilled tradespeople in a red-hot job market – reducing the number of new homes they can build.

Inflation, which is at its highest rate in 40 years, may also constrain the supply of homes. Inflation makes it more difficult to build homes, as the price of materials remains high. Plus, some homeowners may be disincentivized to sell in a time of heightened inflation, as homeownership is a traditional safe harbor against devalued currency.

Finally, housing inventory may not expand because of high buyer demand. While there are signs that buyer demand is slightly cooling, the demand for homes continues to outstrip supply in many markets. And higher mortgage rates could actually spur some buyers into the market this spring and summer, as they attempt to secure a decent rate while they still can.

If there are more qualified buyers than available homes, properties won’t sit on the market for long, and overall housing inventory is unlikely to increase.