Housing Market Inventory Shrank by Half Over the Past Year

Real estate agent shirts

Housing market inventory has been in the news a lot lately. In fact, now that the record-low mortgage rates are behind us, low supply levels are the dominant story within the real estate world.

Adjectives like “tight” and “constrained” are frequently used to describe the current housing market inventory situation within the U.S.

And it’s not hyperbole or exaggeration. It’s true. Many cities across the U.S. are currently experiencing an unprecedented shortage of homes for sale. Meanwhile, the demand from buyers continues to soar. And while conditions can vary considerably from one local real estate market to the next, this is definitely a national trend.

Just consider the latest evidence.

Earlier this month, the research team from Realtor.com published a housing market report that revealed a major decline in the number of homes for sale. That’s actually a bit of an understatement. When measured by the “total active inventory,” housing market inventory in the U.S. dropped by half over the past year or so.

U.S. Housing Market Inventory Drops 51% in a Year

On March 11, housing analysts from Realtor.com published a report that outlined the lopsided nature of the U.S. real estate market. In this context, “lopsided” refers to the widening gap between buyer demand and the available supply of homes.

Here’s the short version. Housing market inventory in the U.S. was already low a year ago, and recent data show a continued decline in supply nationwide.

To quote the company’s March 2021 report:

“Total active inventory continues to decline, dropping 51% year-over-year in the week ended March 6. With buyers active in the market despite, or perhaps because of, the uptick in mortgage rates, homes are selling quickly and the total number actively available for sale at any point in time continues to decline.”

Some of the hottest markets have seen an even bigger decline in total inventory. These include real estate hotspots like Austin, Dallas, Jacksonville, Phoenix and Raleigh, among others.

That 51% statistic stands out on its own. But when you consider that real estate market supply in the U.S. was already depleted a year ago, it sends an even stronger signal. Home buyers should take note of these trends and prepare accordingly. As of spring 2021, it’s a highly competitive seller’s market in most cities.

This isn’t a seasonal trend or a short-term blip on the radar. The current housing inventory shortage will likely persist for some time. After all, it took several years for us to get into this situation. It could take several more years to see a noticeable change. The current low-supply environment will shape the U.S. housing market through the summer months and probably for the remainder of 2021.

Even Real Estate Industry Veterans Are Shocked

In most U.S. cities, home buyers who enter the housing market in 2021 will find themselves competing for limited inventory. There just aren’t enough homes to go around. But many of these buyers (and especially the first-timers) don’t have a frame of reference to put it all into perspective. It’s all new to them.

But even the industry veterans are surprised by the current inventory shortage affecting the U.S. real estate market in 2021. Jeffrey Mezger, president of KB Home and a 40-year veteran of the housing industry, recent told CNN Business:

“It’s crazy. There is no inventory … It’s a good time to be a homebuilder.”

A good time indeed. KB’s profits grew by more than 60% during the first quarter of 2021. But builders and developers aren’t the only ones thriving. It’s also a good time to be a “regular” home seller. In many real estate markets across the country, the ongoing supply shortage has made it incredibly easy to sell a house.

It goes something like this:

  • Step 1: List the property for sale.
  • Step 2: Wait for the offers to pour in, and choose the best one.

Forget about home staging and expensive marketing campaigns. Those things typically aren’t necessary in an overheated housing market with low inventory levels.

Again, real estate conditions can vary from one city or region to the next. Some markets are hotter than others, with faster sales and stronger demand. But the latest data show that this low-supply trend is affecting most U.S. cities, to some degree.

A Different Scenario from the Last ‘Boom’

In terms of home sales and price growth, the U.S. is currently experiencing a kind of housing market boom. But it’s completely different from the last time around.

During the mid 2000s, the country also experienced a surge in home-buying activity. It was partly fueled by lax lending standards, which isn’t a factor today. There was also a huge increase in new-home construction back then. But construction has lagged behind demand for the past few years.

On top of that, many would-be sellers are reluctant to list their homes out of fears they won’t be able to find another one. They’re reading the same news stories. They understand the situation. And a lot of them are staying put, at a time when they might otherwise be inclined to sell.

Selma Hepp, deputy chief economist at CoreLogic, recently told CNBC:

“Potential sellers may be discouraged by their inability to find a new home and subsequently choose to not list their own home — leading to a vicious cycle of declining for-sale homes.”

Buying a Home in a Tight Market

Due to the shortage of housing market inventory, home buyers in many U.S. cities will encounter challenges in 2021. That doesn’t mean you can’t succeed in this kind of market. You can. You just have to be realistic. Patience and persistence go a long way, as well.

You also have to know the “tricks of the trade” for buying a home in a low-supply environment. One of the trends we’ve seen over the past few months is buyers waiving certain contingencies to make their offers more attractive to the seller.

A contingency is basically a requirement for the sale. They’re usually written into the purchase agreement. One common example is the home appraisal contingency. This provision gives the buyer a way to back out of the deal, if the property appraises for less than the agreed-upon purchase price.

Home inspection contingencies are also common. Or at least, they used to be. In many housing markets across the country, tight inventory and strong demand have led buyers to waive such contingencies. They’re offering more — and asking for less — in an attempt to get the seller’s attention.

That’s the reality of the current real estate market.