Breaking Down Low Housing Inventory

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There’s a lot of chatter about the housing market these days. Interest rates are up. Houses are selling fast. But many would-be buyers are still without options. So why is housing inventory so low?

When you break it down, there are four key factors that drive the dip in options.

  • The COVID-19 pandemic,
  • Previously record-low interest rates,
  • Millennials seeking homeownership, and
  • A variety of new home construction issues that began almost 15 years ago when the housing market crashed

The pandemic

The threat of COVID-19 shut the country down in early 2020. People stayed at home and even if they’d previously thought about putting their houses up for sale that spring, they didn’t. Who wants to buy or sell a house during a pandemic?

The majority of homeowners in this country are baby boomers or older, the same group considered high risk for COVID. Many were certainly reluctant to sell, downsize, or move into assisted-living spaces in the middle of a pandemic. Younger buyers, who might have considered selling, opted out because of a lack of buying options. What’s the point of selling your house if you can’t buy another?

Previously record-low interest rates

The Federal Reserve cut interest rates in 2020 to fight the COVID-19 recession. By December 2020, rates dipped as low as 2.68 percent, according to Freddie Mac. It was enticing for homebuyers who suddenly could afford to buy new homes because it cost less to borrow money. The surge in home sales caused an increased demand and ultimately impacted the supply of houses listed on the market today.

A new generation of homebuyers

About 43 percent of homebuyers are millennials—currently the largest living generation in the United States, according to the 2022 Home Buyer and Seller Generational Trends report from NAR. Prior to the pandemic, many millennials weren’t interested in homeownership, and if they are now, they’re scooping up homes as quickly as possible.

New construction issues

There’s a huge supply-and-demand gap, and a major reason for it is years of underinvesting and underbuilding, according to a NAR report released in January 2021.

After the housing market crashed in 2008, the number of houses being built rapidly decreased. In 2007, the number of new house construction starts was 1.5 million. By 2009, the number of new houses dipped to 554,000. That number has slowly increased, hitting about 1 million starts in 2014.

Last year, there were 1.5 million construction projects, but most were for apartment complexes and multi-home dwellings, not single-family homes. Many of those projects have been waylaid because of supply chain issues.

However, now that interest rates are climbing, experts expect housing sales to slow down, normalizing the market. That combined with the rise in new construction starts should result in a steady increase in inventory over time.

Got questions? Reach out to one our loan officers—they’re excited to help you through the homebuying process.

With more than 21 years in the industry, we’re a leading fintech mortgage lender saving current and potential homeowners money and time through transparent rates, zero junk lender fees*, and technology that automates over five million tasks each month. We’ve served over 100,000 borrowers, boast a 98% customer satisfaction rating and 4.9 stars on thousands of online reviews, and provide a “mortgages without migraines” experience. (*Note: Wyndham does not charge junk fees, application fees, processing fees, or underwriting fees. There can be fees charged directly by Third Parties for services such as, but not limited to, title, settlement, appraisal, taxes, and insurance.)

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