What’s Behind Low Inventory?

Tom Brezsny
- Tom Brezsny

What’s Behind Low Inventory?

This has been the longest running, highest appreciating, craziest-making “up” market anyone has ever seen. For ten years, a historic low level of supply has held sway and leveraged a remarkable rise in intensity, competition and of course, prices. 

In the old days 4-6 months of inventory was considered a balanced market but we haven’t seen anything close to that in a long time.  What’s behind the great shrinking effect that has a stranglehold on supply? Here’s a short list: 

Lack of New Homes:  YIMBYS and NIMBYS can duke it out for the moral high ground but the fact is, we’ve had a 30+ year history of low/no growth policies that have severely constricted supply. The Great Recession also had a huge impact on new building investment. The market still hasn’t caught up

Missing Move-Up Market:  Before the mid 2000s the market was driven by move-up buyers, buying and selling in the same market and that maintained a balance between supply and demand. The majority of current buyers are millennials  who don’t have homes to sell. Second home buyers also don’t add to the existing inventory. 

Demographic Shifts:  Huge numbers of baby boomers were just hitting retirement age (65) in 2008 while millennials coming out of college had trouble entering the workforce. Meanwhile members of the silent generation born between 1928-1945 were/are living and holding onto their homes (inventory) longer.  As these three groups continue to age, they are contributing to the low inventory landscape.

Difficulties in Downsizing: There are specific challenges that make it more difficult for aging boomers to downsize. Since they own the majority of existing homes those challenges are holding back supply.  If it was easier to downsize, more inventory would be available.  

Speed of the Marketplace:  Tech and digital platforms are increasing the speed of real estate. A faster process absorbs more of the available inventory faster, leaving less supply in its wake. Real estate supply is inching more towards an instant supply chain model that doesn’t require as much inventory to drive the market.

Catch 22 of Low Inventory.  Once in a low inventory market it is difficult to escape a low inventory market by virtue of the way the homebuying process works. Here’s an example:  An aging boomer wants to sell a larger house and buy a smaller one in the same market, where the inventory is low and there are multiple-offers on everything. The odds of getting an offer accepted contingent upon the sale of the buyer’s existing home are close to zero. Sellers don’t have faith that they’ll be able to buy another home if they put their home on the market.

We’ll continue the conversation next week… 

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