Navigating Low Home Inventory: What Agents Need to Know

It wasn't surprising for home inventories to be historically low during the worst of the COVID-19 pandemic – but what about now? Is the home inventory still in trouble? The short answer, yes.

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This post will cover the numbers and reasons behind the low home inventory, and how real estate agents can navigate these muddy waters.

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Defining Home Inventory

To start, it is important to define home inventory and get on the same page. Home inventory refers to the collective amount of homes currently being sold on the real estate market. And “homes” refer to any property used for residential purposes. This includes traditional single-family homes but also:

• Condos
• Cooperatives
• Duplexes
• Townhouses

• Multifamily Residents (with less than 5 units)

All of these properties go into the total number of homes available through the home inventory.

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How Low is the Current Home Inventory Supply? 

To give a fuller picture of our current home inventory supply, let’s start a few months back. In April 2021, housing inventory bottomed out at 960,000. In September 2021, there were signs of recovery with the housing inventory reaching 1.1 million. That didn’t last. Since October 2021, the home inventory has either remained stable or decreased.

The last month has been no exception. Zillow’s February report reveals that the U.S. home inventory has sunken down to 729,000 home listings. For comparison, that’s a 21% drop from February 2021 and a staggering 48% from February 2020 (Forbes).

March will be the 6th consecutive month of drops for the housing inventory, and remains near four-decade lows.

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Why is There Low Home Inventory?

So, why is home inventory so low? Well, it’s a combination of multiple untimely factors – all working together to spike up the demand for homes. These factors include the five-year millennial buying window, the unstable global supply chain, and, contrary to reason, surging mortgages and home prices.

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Five-Year Millennial Buying Window

Every millennial born in that generation’s five biggest birth years will turn 30 – aka the most popular home-buying age – by 2023. Now, here’s the problem. After the 2008 recession, homebuilders weren’t building as many homes. Even before the pandemic struck, there simply weren’t enough homes to account for this demographic wave; Let alone a wave of eager buyers held up for two years and more-than-ready to get going with home buying. 

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Failing Global Supply Chain 

The global supply chain is suffering from a shortage of labor even now. Production is taking hits at almost every level, and home building materials are no exception. Homebuilders are struggling to fulfill contracts and start new projects because they don’t have the material to do so. From garage doors to raw materials, the global supply chain continues to struggle.

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Spiked Demand Due to Increased Mortgage and Home Prices 

Most of us know that mortgages and home prices are increasing. 30-year fixed-rate mortgages have rates averaging 4.727% while 15-year fixed-rate mortgages have rates averaging 3.498%. Both jumping nearly 1 entire percent since January – with no signs of halting. In terms of housing, Zillow predicts house prices will now spike by 16% in the next few months.

Theoretically, these trends decrease demand and stabilize the low home inventory. In the long term, yes. But, in the short term, the opposite effect is happening. People are losing their patience with the market and many of them are feeling a sense of “buyer urgency”. If they don’t buy right now, they fear that homes and mortgages will get even more expensive in the future. 

Hence, why the home supply has plummeted even more.

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How Long Might Low Home Inventory Last?

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Is there light at the end of the low home inventory tunnel? Yes and no.

For the remainder of 2022, the low home inventory will likely remain as is. Home prices and mortgage rates will continue to rise (albeit at slower rates), and this upholds that sense of “buyer urgency.”

But, by 2023, the real estate industry is shaping up to be something more normal. The global supply chain will likely have fixed itself and the primary wave of 30-year old millennials will have already settled for a home. The rate of mortgages and home prices may also drop to pre-pandemic levels.

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As the real estate industry returns to a sense of normalcy, the low home inventory will slowly but surely bounce back.

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Best Practices for Navigating Low Home Inventory As an Agent 

There’s another year left of low home inventory. What can you do as an agent? To help your buyers the best, it’s important to keep these concepts in mind:

Be compassionate. Low home inventory can be incredibly frustrating for buyers. At LendPro, we have decades of experience in the industry and we’ve seen this trend come and go before. But your client might not have. Imagine a dream home being swept away from them over and over again. Take the time to show that you care about their goals and express that you have the knowledge to help them win.

Give your buyers the right tools. With low home inventory, it’s largely a first come, first served system. Be active on the Multiple Listing Service (MLS), and keep your buyers informed on houses as soon as they are put on the market. While buyers won’t have access to MLS, you should inform and encourage them to scout listing services and apps.

In a seller’s market – you still need to pursue buyers.  Buyers won’t magically turn to you unless you have the experience and reputation. Many buyers hire agents, like the stellar ones here at LendPro, because they’re a friend or family member. Or, because that friend or family member gave them a referral. Learn to market yourself and engage with your networks, and you’ll see more buyers turning to you.

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