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6 More Reasons Why Inventory Is Low; Not What You Think

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I recently blogged about the coming “Nuclear Winter” for housing, focusing primarily on a massive pending inventory shortage.

I am beating that dead horse one final time for several reasons: (1) it is a major issue that will impact us all; (2) this is excellent info for buyers to know when home shopping so they know they either need to bid much more aggressively or know why they are unable to find the house of their dreams; and (3) Appraisal Blogger Extraordinaire, Ryan Lundquist, blogged about this exact issue the day after I did (Why Is Housing Inventory So Low?), and added some excellent additional insights.

As an aside, I once again highly recommend subscribing to Ryan’s appraisal blog because it is so educational and helpful when it comes to explaining appraisal issues.

Ryan sets out 9 reasons why inventory is so incredibly low. The first three include the usual suspects: (1) sellers aren’t listing during the pandemic; (2) demand is surging because of low rates; and (3) there has been insufficient new construction since the housing meltdown.

It is the remaining 6 reasons that add new twists to the discussion:

(4) Shift in demographics. People are staying in their homes an average of 13 years now, up from an average of only 8 years a few years ago.

(5) Increased migration. Ryan’s focus is on the Sacramento metro area, which has seen a surge in demand from Bay Area buyers. So, it is not just suburbia and low-tax states getting hit by demand from fleeing homeowners; it is metro areas like Sacramento, Jacksonville, and even Milwaukee.

(6) Nowhere to go. Sellers don’t want to sell when they know the pickings are slim for a new home.

(7) Shift to larger homes. Because average home sizes have increased so much over the years, homeowners don’t need to sell to move up into something larger.

(8) “Other”/Large investors buying up inventory. Ryan does not give as much significance to this as to the other factors, but I suspect this may be a bigger factor than any of us realize. Huge funds and investors have bought up tens of thousands of homes over the years that they are not re-selling.

(9) Not a distressed market. When the market and equity positions are strong, sellers are not “forced” to sell nearly as often (there are very few foreclosures and short sales).

I once again recommend reading Ryan’s entire blog (linked above) because he provides ample charts and numerous links to back up data.

I also highly recommend sharing this or Ryan’s blog with buyers who ask their realtor: “Dude, why do you want me to bid $25,000 more than asking?” or “Dude, why can’t you find me a house?”

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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