Housing inventory has been woefully low for years. It all goes back to the crash over a decade ago when home values plummeted and new home construction ground to a halt.
Construction has picked up a little steam since then, but the demographics are different. Millennials are now in their prime homebuying years -- and as the biggest generation our country has seen -- and construction just can't keep up nor make up for the huge deficit. (At one point last year, Freddie Mac estimated the market was nearly 4 million homes short of demand.)
The impacts of the shortage are palpable: Home prices have skyrocketed. Bidding wars have been the norm on virtually every property. And contingencies? You probably won't get far by including them.
But how long can these conditions really last? When will supply increase enough to meet demand and cool things off a bit? Let's take a look at the numbers.
Image source: Getty Images.
More housing supply?
According to a Zillow survey of industry experts, most expect housing inventory to return to pre-pandemic levels by the end of 2024 -- so about 2.5 years from now.
It sounds great, but the term "pre-pandemic" is key here. Back in 2018 and 2019, the monthly average inventory was around 1.6 million units. Now, it's around just 1 million.
To be clear: Nearing that 1.6 million mark again would certainly ease some pressure off the market, but it wouldn't solve the country's housing woes by any means, since 4 million homes is a lot of ground to cover. It would, however, slow price growth and make things a bit less competitive on the ground.
Question marks
A few things could throw a kink in that recovery, though. For one, mortgage rates are rising. With many homeowners locked in at much lower rates than today's (last year, the average 30-year loan rate was 2.98%, according to Freddie Mac -- today, it's over 5%), these numbers offer very little incentive for homeowners to list their properties or buy a new one.
Also, homeownership tenure -- which was already on the rise -- is getting longer. In 2021, the average homeowner spent a whopping 13 years in their home, according to Redfin. That's up from just 10 years a decade ago.
Finally, there are construction hurdles to consider. Labor shortages have long been a problem for the construction industry, and those don't seem to be letting up. Construction job vacancies increased in March and have climbed steadily since mid-2020. Openings are now approaching their highest point on record (416,000 vacancies reached in April 2019).
Thanks to inflation, the cost of building materials is also on the rise, which could slow builders' progress as well. All in all, as of March building material prices increased 20% over last year and are now up 31% since the start of 2020.
Only time will tell
Housing conditions are constantly in flux, and with inflation, the conflict in Ukraine, and other economic concerns looming, there's no telling just when inventory will bounce back -- or by how much.
Your best bet is to purchase a property when it's right for your investing goals and budget. And if you buy in a hot market like today's, make sure you get a knowledgeable agent on your side. They can help you stand out from the competition.