Let’s Talk About It

Tom Brezsny
- Tom Brezsny

Let’s Talk About It

Low Inventory… we’ve been talking about “it” for ten years and we still haven’t figured “it” out.  It’s a mystery wrapped in a riddle inside of an enigma and all we’ve come up with are a few of the  “usual suspects” like the recent rise in interest rates…

But the so-called “mortgage lockdown effect” is a new phenomenon and it doesn’t come close to explaining why these last ten years have also been the ten lowest years on record for supply. Something is missing and I think there’s an age-old culprit hiding in plain sight that’s the real reason for our massive shortage of homes  

But…. I’m getting ahead of myself, so let’s step back and take a quick look at some of the ways  the relationship between supply and demand plays out and how choices are either added to or subtracted from the existing inventory or in many cases just traded back and forth,  up and down the supply chain.

There aren’t a lot of different ways to add new supply to the existing mix. New construction is the most obvious. Death is another since homes get recycled back into the larger pool after their owners surrender their ashes back to the earth (unless heirs decide they want an investment property). Occasional distress situations also add to the supply when homeowners are forced to sell and can’t afford to re-up with another home.

As for the rest, most activity that happens in the market on a daily basis either lowers the existing supply or fails to change the tote board at all:

First Time Buyers: When they purchase, the supply drops. 

Move-up Buyers; The supply doesn’t change when they sell and buy up at the same time. 

Downsizing: Supply is unaffected if boomers sell and then purchase smaller homes.

Vacation Homes: When existing owners buy 2nd homes supply drops.

Investment Buyers: Reduce supply when they purchase a rental property.

1031 Exchange:  Supply stays the same when one rental is exchanged for another.

Divorce:  When spouses split and buy separate homes the supply is reduced.  If neither are left with enough money to buy again, supply increases.

There are other kinds of transactions of course, but the Four D’s (death, divorce, distress, downsizing) are the primary reasons for selling these days. The 4Ds have been mainstays of the market for a long time and since low inventory was never a problem before something else must be causing the extraordinary decrease in the supply.

More Next Week…

Contact Us

Contact Us

I am interested in:

Skip to content