Why is home inventory low at the moment?

Rental Property Investor · Wilmington, DE · Member since 2020 · 35 posts · 19 votes

I'm seeing and noticing a super low inventory in homes which is causing markets to become super competitive to a point where people are buying homes for above market value. I know the low rates have buyers seeking to purchase homes as well but my question is that if homes are being sold so frequently and some above market value or asking prices, why is the inventory so low? Just trying to get an understanding into how COVID can effect the inventory of homes.

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Dennis Cosgrave

Rental Property Investor · Member since 2019 · 304 posts · 462 votes

There are basically three reasons:

1) People have lost their jobs and do not qualify for a new mortgage if they choose to sell and repurchase.

2) People are still afraid of COVID and do not want strangers coming through their homes. They are delaying listing their homes until the threat has passed.

3) Because of the decreased inventory, prices have moved higher in desirable areas, or have moved significantly lower in the big cities (NYC is prime example). Sellers cannot sell in less desirable areas for their asking price and buyers are being priced out of the market in desirable areas.

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Account Closed
Rental Property Investor · Mechanicsburg, PA · Member since 2018 · 281 posts · 176 votes
6y
@Terry Harris Hi Terry, my thoughts are the people that are settled in at home seeing how this COVID plays out don't really want to make a move now (Unless a job loss, other action or those market savvy who see a chance for a good profit now drives them to sell).
Buyers are motivated by what you mention, low rates, as well as a desire to move out of the high population areas as they saw the COVID wave and high infection rates being reported daily in the press. They are willing to pay a little more to move now and settle in less populated suburbs. My take anyway.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
Inventory will be low if you have people buying, but not listing. Many people who have homes are not going to move right now. Some have lost jobs and want the security of their home. I'll bet a lot of those buying are renters or people who are moving from another city.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y
It's not safe for 50 million elderly Americans to leave their homes right now. Most of their friends and family members are being careful as well...and so are many people in general. Buying and selling homes right now is the last thing they are interested in. The health concerns, double digit unemployment, and other people concerned with their employment does not create an environment for a high volume of discretionary housing changes.
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Dennis Cosgrave
Rental Property Investor · Member since 2019 · 304 posts · 462 votes
6y
There are basically three reasons:
1) People have lost their jobs and do not qualify for a new mortgage if they choose to sell and repurchase.
2) People are still afraid of COVID and do not want strangers coming through their homes. They are delaying listing their homes until the threat has passed.
3) Because of the decreased inventory, prices have moved higher in desirable areas, or have moved significantly lower in the big cities (NYC is prime example). Sellers cannot sell in less desirable areas for their asking price and buyers are being priced out of the market in desirable areas.
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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
I don't know. In Portland and this is entirely ANECDOTAL:
1) I see FOR SALE signs starting to stack up
2) Am buying a place from my brother-in-law and the CU broker says 95% of his biz is re-fis NOT originations
3) Money shot - I think I can get 30 years at 2.375%
Different markets are different.
2 Reply
Terry Harris
OP
Rental Property Investor · Wilmington, DE · Member since 2020 · 35 posts · 19 votes
6y
@Account Closed

Wow great insight! Never looked at it like that. Thank you.
1 Reply
Ben Thomasian
Redwood City, CA · Member since 2017 · 13 posts · 10 votes
6y
To add to all of this, a lot of agents have been discouraging people from listing their properties in my area because of the hassle of dealing with Covid at the same time, many of them have, had said just wait a couple months then list later. I was told this on mine, listed it anyway.
2 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Terry Harris people aren’t selling due to coronavirus and people are buying because rates are so low.
Builders haven’t been building as much since the housing bust and so these are the results you get
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Terry Harris
OP
Rental Property Investor · Wilmington, DE · Member since 2020 · 35 posts · 19 votes
6y
Originally posted by @Account Closed:
@Terry Harris Hi Terry, my thoughts are the people that are settled in at home seeing how this COVID plays out don't really want to make a move now (Unless a job loss, other action or those market savvy who see a chance for a good profit now drives them to sell).
Buyers are motivated by what you mention, low rates, as well as a desire to move out of the high population areas as they saw the COVID wave and high infection rates being reported daily in the press. They are willing to pay a little more to move now and settle in less populated suburbs. My take anyway.
Thank for the input. That makes sense as to why people don't want to sell at the moment.

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Martin Michael
Investor · Hillsboro, OR · Member since 2020 · 8 posts · 7 votes
6y
I would love to see a chart showing employee churn rate vs number of property listings. Employers keep their people and can't really fire them if they enjoy/enjoyed PPP loans thus less relocations due to jobs.
Open Houses are replaced by virtual tours and if you are lucky to visit houses then they need to be cleaned/disinfected before and after showings so I agree with @Ben Thomasian that agents discourage sellers to list.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
1) Inventory was already low pre-covid19
2) As we enter recessions, inventory tends to drop with consumer confidence anyways. Trade up sellers/buyers delay until the economy improves.
3) Sellers do not want those sick with covid in their homes currently
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
Originally posted by @Steve Morris:
I don't know. In Portland and this is entirely ANECDOTAL:
1) I see FOR SALE signs starting to stack up
2) Am buying a place from my brother-in-law and the CU broker says 95% of his biz is re-fis NOT originations
3) Money shot - I think I can get 30 years at 2.375%
Different markets are different.

I'm in a small town in Alberta. There have been 9 houses for sale in the last few months. Two are brand new, they haven't sold all of the others except one have sold in the last 2 months. The 6 that sold are a mix of old and new, one flip. I've never seen that many houses for sale in such a small area-literally along a couple of streets, and for them to sell so fast is really unusual. The low interest rates help. I renewed at just under 2.5% (Canadian mortgages work differently than in the US).
2 Reply
Brad HammondBusiness Member
Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
6y
While demand is still very high, some owners who would normally be selling are reluctant to have people in their homes. That's my opinion.
2 Reply
Josue Vargas
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
6y
@Terry Harris
Pandemic/fear, recession, less job opportunities/unemployment, less marriages/relationships, people are no skipping that school district, etc. etc. Welcome to Real Estate Investment.
2 Reply
Jaquetta T Ragland
Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
6y
@Theresa Harris I agree with this. I think most people are afraid to move and the very few people who are moving are getting top dollar. As a realtor right now, the competition is crazy. It really doesn’t matter right now if you offer asking price because someone will come in and offer more. And you better be willing to offer even better terms, ie your financing, earnest money, etc.
4 Reply
Jaquetta T Ragland
Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
6y
@Ben Thomasian good for you. I think the market is so good right now...even if you got a hotel for 1 week while your house is being shown, you’ll probably sell within that time and make enough money to pay for the hotel stay...if your house is in good shape.
1 Reply
Jason Regan
Investor · Leominster Ma · Member since 2019 · 305 posts · 162 votes
6y
I have really been watching this as a Real Estate agent. In fact I just pivoted my business in order to start investing too. This is my thoughts on this. People were planning to sell then COVID hit and they decided it would be a bad time to sell. We have another threat of being shut down again and it scares people. My gut is telling me most people packed in the idea of selling till next year. Couple this with the uncertainty of peoples job status and its a recipe for inventory shortage. Leominster Ma and Worcester Ma both have under 1 months worth of inventory right now. A good market typically has 4 months
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
6y
I am a bit let down that nobody has pointed out the question to @Terry Harris of exactly how is "everyone" buying "at above market prices" when the very definition of Market Price is the amount for which something can be sold in a given market?
Above market price = not selling, selling = at market price, selling fast & for more than listing = below market offering.
So your actual question and issue is why are homes selling for more than you think they are worth, correct?

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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
6y
This is very market dependent, what I'm seeing in my market is a lot of sellers scared to list due to not wanting people in their houses at this time. The buyers are still there though. Basic economics playing out.
Driving house prices through the absolute roof. Not sure how some of these appraisals are coming back, but from what I know people are waiving contingencies now.
1 Reply
Oscar Cardenas
Real Estate Agent · Salem, OR · Member since 2019 · 86 posts · 60 votes
6y
Inventory has been low for a long time now. James Hamling said it correct, I too am disappointing no one said this earlier lol.

These buyers are not buying above market value. If buyers are buying at a certain amount then that is pull toward market value. Market value changes all the time based on seasons and appreciation. Gotta keep that in mind, I see this "Market value" conversation pop up a lot in small "gut decision" based flippers in my realty business. appreciation just simply outpaces their base knowledge of price.

Also, listed price does not equate to market value. If buyers offer above listed price then that just means it was priced below market. The market comes and pulls the price closer to "market value".

Don't mean for any of this to sound aggressive, but the idea of market value causes a lot of analysis paralysis for newer investors that don't understand it. It will always feels like there is a mini frenzy going on and prices will go back down to your normal. They almost never do lol. Now this COVID thing is very strange and no one knows where things are going to go, but just buy right based on recent comps and you should be fine.

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Terry Harris
OP
Rental Property Investor · Wilmington, DE · Member since 2020 · 35 posts · 19 votes
6y
Originally posted by @James Hamling:
I am a bit let down that nobody has pointed out the question to @Terry Harris of exactly how is "everyone" buying "at above market prices" when the very definition of Market Price is the amount for which something can be sold in a given market?
Above market price = not selling, selling = at market price, selling fast & for more than listing = below market offering.
So your actual question and issue is why are homes selling for more than you think they are worth, correct?
Wow, never looked at it like that! Thank you for the insight. And yes that should be the actual question.

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Jeff C.
Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
6y
Sure, whatever a property sells for on the open market is "market price" at that moment, however markets can also certainly become completely irrational. Recognizing this in 2006 saved me from financial ruin. Median home prices in Bakersfield STILL have not passed the 2006 peak. A property being fairly priced "at market" and being a good investment are two entirely different things.
1 Reply
Robert M.
Investor · Dundee, OR · Member since 2016 · 104 posts · 162 votes
6y
Current supply and demand problem stems from too much regulation at the state level. Builders are facing huge costs in material, labor, permits, and hold over expenses.This has contributed to the high price on new homes and helped drive up the price of existing homes. This has also contributed to Less people wanting to be home builders. If the state wanted to do something about affordable housing or housing in general they would put all that tax money they take for study's and use it to reduce or eliminate building cost regulation. Bottom line, we need more affordable housing and the states need to incentivize that with out taxing the hell out of the people.

Oregon policy, cant build there, there might be a spotted frog or that tree is 200 years old, so please use 1/4 of your development ground for a green space, after that we will give you your overpriced SDC's.

My Brother builds small subdivisions in Aloha Oregon. I asked him why he dosnt build a 3/2/1500 square foot ranch. He said the county wont let me, zoning conflicts, so he builds 500k to 700k homes. Its more money for the county.
2 Reply
Account Closed
Investor · Bakersfield, CA · Member since 2015 · 161 posts · 46 votes
6y
@Jeff C. great point. Bakersfield's economy, focused in essential products and services has been resilient. We recently made the news as the 7th fastest recovering economy nationwide in 2020 from the economic sledgehammer of COVID-19. This, combined with the fact that people from California's 3 mega-cities are reconsidering the central valley with the advent of remote work, I think our market has more room for growth through the end of the year at least - not an economist, just my observations.
1 Reply
Alyssa Dyer
Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
6y
@Dennis Cosgrave #3 is the biggest one I’ve noticed. In my market the prices are already low so sellers are just like “what will I have when I sell except a bunch of cash I don’t need and a tax bill??” Lol.
It will swing back, always does. It’s an interesting time though.
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