Low inventory in the real estate market is all over the news. Most major cities have the lowest inventory they have ever had, causing home prices to escalate at a rapid rate. In order to have a balanced market where the buyers and sellers have equal negotiation power, we need more homes to be available for sale. Before we can determine if we will see more housing inventory this year, let’s look at what has caused the shortage.
Before March of 2020 when everything shut down and life as we know it changed, we were already in a seller’s market. By April, we saw a significant drop in housing inventory across the nation and seemed to come to a stand-still in many markets across the US. There were many who had been planning to list their homes for sale and decided to put that on hold while they observed the economic impacts of the lockdowns. Others made the decision to wait due to the health and safety aspects of moving during a pandemic. By June there was a slight increase, but inventory remained at record lows for the rest of the year and into 2021.
Now more than a year later we seem to be coming out of what is hopefully the worst of the pandemic. More and more people are beginning to put their minds at ease and re-enter public spaces, in large due to two COVID-19 vaccines being widely distributed at an impressive rate. As vaccination numbers increase, so will the number of those returning to “normalcy”. With this we should see more people begin to list their homes for sale, increasing inventory as we head into the second half of the year.
Construction Slow Down
The lack of houses being built is arguably the largest reason for our low inventory predicament. After the real estate crash in 2007-2008, housing construction was reduced dramatically.
Even after-market conditions and the economy improved, construction on new housing never went back to the pace it was at pre-recession. In recent years, construction on homes has slowed down again due to a shortage of skilled workers and building supplies. Government regulation on land use has increased in the last decade and has also stalled some projects.
The good news is housing developers have finally decided to pick up the pace in their projects. In Arizona, DR Horton bought a 270 square mile parcel of land for 245 million dollars intending to build multiple master-planned communities over the next twenty years. Some cities in Utah are considering relaxing building and zoning codes to allow more housing to be built. This would include mixed-income developments to provide housing for lower-income residents.
Experts are optimistic that more states will begin to loosen requirements for new build developments and make the land purchasing process easier allowing developers to get to work. The experts are also predicting close to 1 million homes will be built nationwide in 2021, and hopefully, this trend will continue.
Bank Owned Homes
As part of the CARES Act, millions of homeowners have enrolled in a mortgage forbearance program which prevents their homes from being foreclosed in the event the homeowner misses a payment. The CARES Act’s mortgage forbearance program gives homeowners a total of 15 months of penalty-free relief. This is not forgiveness and once this program expires, homeowners will be required to make these payments that were skipped. It is predicted that when this time comes, many will still be unable to make the necessary payments, resulting in their homes being foreclosed on and eventually listed for sale, contributing to an increase of inventory. Foreclosure is a lengthy process, so these homes may not factor into real estate inventory until the very end of the year.
What To Expect
It seems that yes, we should see more homes enter the market toward the end of 2021, but not nearly enough to satisfy the demand we are currently seeing. Experts predict home values to continue to increase through the start of 2022, but not in the dramatic way they have in the last year.