Last Updated on December 14, 2023
If you’ve been on the hunt for a home or are thinking about starting the home search process in 2024, you may be wondering about the housing inventory shortage. In today’s post, we’ll look at the 3 biggest reasons for the inventory challenge and what you can do to combat those obstacles as you look for a home.
Lack of new home construction
Since the Great Recession, the average number of completed homes has been far below the 52-year average. Insufficient building for years has exacerbated the inventory challenge, as builders did not keep up with demand.
As builder confidence starts to rise and more and more home buyers seek out new construction in light of existing home inventory challenges, 2023 was the first year in many years that the number of completed homes was back at the 52-year average. If interest rates remain what they are currently or even decline further, it’s expected that builder confidence will continue to rise, and even more new homes will be constructed in 2024.
Interest rates
Rising interest rates have kept many would-be buyers in their homes longer. Did you know that roughly two-thirds of outstanding mortgages have a rate under 4% and more than 90% have a rate of less than 6%? While interest rates are not likely to dip to what they were during the pandemic housing craze, experts are predicting that interest rates will be in the mid to high 6’s, enticing buyers that have been sitting on the fence for the last 18 months or so.
People aren’t moving as often
The median homeownership tenure is 13.2 years, which is up 3 years over the last decade. Besides the shift towards people staying in their home longer, another factor affecting the number of homes for sale on the market is the fact that baby boomers are also not downsizing like they used to. Both of these trends seem to be here to stay and as a result, the propensity to stay in a home longer is creating an inventory bottleneck.
Tips to help you find the perfect home in a low-inventory market
Consider new construction
While new construction has lagged historical norms for decades, all signs point to the continual rise in new homes completed in 2024. In Raleigh, NC, for example, new home construction made up 42% of home sales in Q2 of 2023.
Get a feel for the market in your local area ahead of time
Prepare yourself with accurate market info in your local area by leaning on the expertise of your realtor. Sit down with your realtor and go over the comps, or comparable home sales in the area you’re specifically targeting before you start touring homes in person. This way, you have a firm understanding of how much you can expect to spend.
Set a budget and stick to it
Understanding the market ahead of time goes along way towards creating a budget that works for both your homeownership goals and your finances. Don’t get caught up in a bidding war that puts you in harms way, financially.
Work with your realtor before you tour homes to set a maximum price you’ll offer for any home and stick to this number throughout the process.
Get pre-approved: the most important step of all
Getting pre-approved is quite possibly the most important step you can take in the beginning of the home buying process. You should do this before you ever step foot in a Realtor’s office and before you even browse for properties online. There’s nothing worse than falling in love with something only to find out you can’t afford it.
Start the process of getting pre-approved by shopping for the perfect lender. Look for a relationship-based referral with an emphasis on trust, relatability, and experience. You want someone who will be there with you, application to closing and every step in between. Customer service could make a big difference on the road to closing, even if all offers are otherwise equal.
Once you select the right lender, you complete the pre-approval process. Unlike a pre-qualification, which is traditionally an automated review of your credit report, credit score and stated application information, a pre-approval scrutinizes every aspect of your creditworthiness. A pre-approval determines exactly how much you may borrow under a specific mortgage program. It’s also a great way to distinguish your offer in a highly competitive, low-inventory market. In other words, once you’ve obtained your pre-approval you can shop for homes with confidence!
