Why Housing Inventory Is Still Below Historical Averages
Housing inventory, or the number of homes available for sale, is a key indicator of the health of the housing market. In recent years, the inventory of homes for sale has been consistently below historical averages, causing concern among buyers and sellers alike. The low housing inventory can be attributed to a variety of factors, ranging from economic conditions to shifting demographics. In this article, we’ll explore the reasons behind the continued decline in housing inventory and what it means for the real estate market.
The Effects of the Great Recession
One of the main reasons for the current low housing inventory is the aftermath of the Great Recession in 2008. The recession caused a sharp decline in home construction, as builders struggled to obtain financing and buyers were wary of investing in a volatile market. As a result, housing starts fell to their lowest levels in decades, and it has taken years for construction to ramp up again to pre-recession levels.
Additionally, many homeowners were left with negative equity in their homes, meaning that the amount they owed on their mortgage was higher than the value of their home. This made it difficult for them to sell their homes and move, leading to a slowdown in the turnover of homes on the market. As the economy has improved and home values have risen, this effect has lessened, but it has still contributed to the overall lack of housing inventory.
Shift in Demographics
Another factor contributing to the low housing inventory is the shift in demographics. In recent years, the number of people entering the housing market has increased, particularly younger buyers who are looking to purchase their first home. However, there has been a decrease in the number of people looking to sell their homes, as many Baby Boomers are choosing to age in place rather than downsizing. This has led to a mismatch in supply and demand, with a greater demand for homes and a lower supply.
Additionally, with an increasingly competitive job market, many people are hesitant to sell their homes and move to a new location for work. This has also led to a decrease in housing inventory, as people are choosing to stay put instead of relocating.
The Impact of Tighter Credit Standards
In the aftermath of the Great Recession, lenders tightened their credit standards, making it more difficult for buyers to obtain mortgages. This has had a twofold effect on the housing market. First, the stricter lending standards have made it harder for buyers to secure financing, leading to a decrease in demand for homes. Second, it has become more difficult for developers and builders to obtain financing for new construction, which has contributed to the slow growth in housing starts.
The Future of Housing Inventory
While the current low housing inventory has presented challenges for both buyers and sellers, there are signs that it may be on the upswing. As the economy continues to improve, builders are beginning to ramp up construction, and more homeowners are gaining equity in their homes, making it easier for them to sell. Additionally, as more Baby Boomers retire and downsize, this may also help to increase the supply of homes on the market.
The bottom line is that while the low housing inventory has been a concern, it is not necessarily a cause for alarm. It is a natural result of economic conditions, demographics, and tighter credit standards. As the market continues to adjust and the economy remains strong, we can expect to see the housing inventory approach historical averages in the coming years.
In Conclusion
In summary, the low housing inventory is the result of a combination of factors, including the aftermath of the Great Recession, shifting demographics, and tighter credit standards. While it has caused challenges for both buyers and sellers, there are signs that it may be on the upswing as the economy continues to improve. So, while the current housing inventory may be below historical averages, it is not indicative of a major problem in the real estate market.
