Home prices have been sky-high for more than a year now, and the reason behind that boils down to the basics of supply and demand. Any time you have a shortage of a given commodity, its price tends to rise. This applies to everyday purchases like food items and apparel, and it also applies to real estate.
The housing market has been starved for inventory since 2020, when sellers stopped listing their homes as the pandemic raged. But despite a much-improved economy, housing inventory has yet to pick back up.
As of the end of February, the inventory of unsold homes was just 870,000 units on a national level, reports the National Association of Realtors. That's the equivalent of a 1.7-month supply of available homes.
Now for context, it takes a four- to six-month supply of homes to create a more equal housing market -- one where buyers and sellers get to enjoy a level playing field. Right now, sellers have the clear upper hand. But will that change in the course of 2022?
Why more inventory could hit the market
There are two interrelated reasons why housing inventory has been sluggish for quite some time. The first, as mentioned earlier, is the pandemic.
Think back to 2020 or early 2021, before the age of COVID-19 vaccines. At that point, the idea of hosting open houses and even individual tours may have sent some sellers running. And so it's easy to see why listings didn't pick up at all during the earlier stages of the health crisis.
Furthermore, the pandemic fueled a widespread economic meltdown that led to millions of lost jobs and countless business closures. Given all of that uncertainly, it's easy to see why sellers weren't exactly rushing to list their homes and make any drastic changes to their financial situations.
But things are looking very different this year in both regards. While the pandemic certainly isn't over, at this point, the U.S. has found ways to cope with the presence of COVID-19. These include vaccines, booster shots, tests, and antiviral treatments.
Additionally, while inflation may be soaring, the economy itself is in good shape. Job growth is strong, and unemployment is low. Therefore, sellers may have fewer qualms about putting their homes up for sale and making major changes to their finances.
It's also worth noting that right now, U.S. property owners are sitting on record levels of home equity. But mortgage rates are also on the rise, which could lead to a strong degree of buyer pullback. Savvy sellers may want to capitalize on the chance to command higher home prices -- before buyer demand wanes and home prices start to come down.
A reason to be hopeful
For all of these reasons, there's a good chance housing inventory will pick up in 2022. Whether that happens at a rapid enough pace to even out the housing market is another story. But it's fair for everyday buyers and real estate investors alike to assume that housing inventory will increase at least modestly in the course of the year.