With a hot homebuying season upon us, many homebuyers are finding themselves facing a frustrating obstacle: lack of inventory in their price range. As demand for mid- to entry-level homes has skyrocketed this season, the availability of homes for sale in those ranges has remained suppressed.
Current homeowners are staying in place
This lack of inventory is driven by a number of factors. First, many current homeowners in those properties feel “price-locked.” Over 60% of mortgage-holders have their loans locked to historically low rates from 3.00% to 4.90%. Those same homeowners might remember a time just a decade a go when rates were much higher, leaving them reluctant to give up their low, locked mortgage rate.
Second, the Baby Boomer generation continues to “age in place” in many parts of the country. Boomers currently own 2 out of every 5 homes in the country (Harney, 2018). With downsizing or assisted-living on their minds for the longer-term, many of these homeowners are continuing to hold onto their homes right now. This reduces the amount of homes available for inventory, and – coupled with a large millennial population at peak homebuying age – has resulted in housing supply not keeping up with demand.
Housing starts have slowed
Another strong contributor to the housing shortage is the decrease in housing starts through 2018 and early 2019. Residential builders are faced with increased regulations, higher material costs and labor shortages, a perfect storm that has resulted in fewer homes being built in many parts of the country, as well as fewer homes of mid- to entry-level price points being built.
Homeowner preferences have shifted
Finally, the economy continues to chug along at or near record-low unemployment rates. Historically, this kind of economic clout encouraged homeowners to consider “upgrading” or buying more house. However, perhaps feeling cautious thanks to the Great Recession and housing crisis of just 10 years ago, homeowners today show a diminished desire to purchase larger homes. Fewer than 10% of homebuyers referenced “the desire for a larger home” as their primary reason for purchasing (REALTORS, 2019).
With current homeowners choosing to stay in place, and others putting off decisions to downsize or move to assisted living, the home inventory continues to be squeezed.
What can a homebuyer do in a limited inventory market?
The inventory picture isn’t all bleak. While we have seen three years of month-after-month declines in home inventory, the future is bright. Zillow recently reported a growing inventory in four of the past five months, the first inventory gain in January since 2014.
Still, homebuyers feeling the squeeze of a limited inventory market, with desirable mid- to entry-level homes subject to competition from multiple offers and selling very quickly. Of homebuyers from the last five years, 60% report they had to make multiple offers before closing on a home while 45% offered more than asking price. (Renter, 2019.)
Some ways to make your offer stand out in a crowded market, to increase your chance of being accepted, include:
- Be flexible on closing dates. The selling and purchasing process can be complicated and expensive for the seller. Being flexible on closing dates will certainly add to the appeal of your offer.
- Get pre-qualified or pre-approved with your lender. Taking this step will make your offer much more desirable. Sellers see less risk in a purchaser who already has the backing of a lender.
- Be prepared to put your best foot forward and fast. Put in a strong offer as your first offer, to increase the chance of a quick agreement to mitigate the possibility of a bidding war with other buyers.
- Consider renovations. It may be difficult to find the “perfect” house, so you may need to adjust your expectations. A well-constructed home in a good neighborhood may be one you can turn into the perfect home after a few updates and upgrades. Many lenders offer competitive loan programs for renovations, and with steady low rates this may be a good option for you.