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Real estate inventory does not seem to be picking up. Read on to see why.
There’s a reason 2023 has been such a tough year to buy a home. Not only have mortgage rates been high, but inventory levels have been extremely sluggish.
As of the end of April, there was a mere 2.9-month supply of homes for sale, according to the National Association of Realtors. That’s well below the six-month supply of homes that’s commonly needed to meet buyer demand in full.
Low inventory challenges buyers in a couple of ways. First, it makes it harder to find a suitable home to consider purchasing. It also increases the chances of being pitted against competing buyers — a scenario that can easily drive home prices up.
Unfortunately, we may be stuck in this holding pattern of low inventory until mortgage rates start to come down. And it’s hard to say when that might happen.
Higher mortgage rates are a big part of the problem
In 2020 and 2021, it was easy to explain away low inventory as a symptom of pandemic-related concerns. Back then, sellers were probably turned off by the idea of having strangers traipse through their homes. But at this point, it’s more than fair to point to elevated mortgage rates as the reason why people just aren’t selling.
Many homeowners rushed to refinance their mortgages when borrowing rates dropped to record lows in 2020 and 2021. Selling their homes at this point would likely mean taking on much more expensive mortgages. That’s apt to be unappealing, which explains why so many sellers are opting to stay put instead.
Even homeowners who didn’t refinance their mortgages a few years back are likely to be sitting on borrowing rates that are lower than the mortgage rates we’re seeing today. After all, who would want to swap a 30-year mortgage at 5% for one at close to 7%, which is what the typical borrower might be looking at today?
It’s also important to note that the stock market had a terrible year in 2022. The market has managed to rally over the past few months, but all told, many investors were sitting on losses in their portfolios as of early 2023. That, too, may have been a contributing factor to a lack of inventory. If investment portfolios weren’t tappable, some sellers may have been forced to sit tight rather than move forward with plans to upsize.
When will things change?
A stronger stock market could potentially drive U.S. home inventories up a bit. But for the most part, it will likely take a dip in mortgage rates more so than anything else to lead to a notable uptick in housing inventory. And it’s hard to say when that will actually happen.
As such, today’s buyers may be stuck with limited choices for the foreseeable future. And they may also have to learn to make concessions if inventory levels don’t rise in the near term. That could mean giving up on certain home features or resigning themselves to higher purchase prices due to sellers continuing to have an upper hand.
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