3 Ways Low Housing Inventory Is Hurting Today's Buyers

There are very few homes for sale. Here's why that's a problem.

Ask pretty much anyone who's looking to buy a home these days, and you hear the same thing. There's just not enough inventory to go around.

In July, the national inventory of active listings was down 33.5% compared to the previous year, according to Realtor.com. And until more homes hit the market, buyers might continue to struggle. Here's why.

1. It's harder to find the home you really want

It's not uncommon for buyers to make a wish list for what could be the biggest purchase of their lives. But when real estate inventory is limited, it makes it much harder to find homes that truly meet buyers' individual needs.

A buyer might really want an updated kitchen and a finished basement in a particular neighborhood. In a normal market, that may be possible, but in today's market, that buyer might find they can only have the updated kitchen or the finished basement -- not both (or at least not at a certain price point).

2. It's prompting sellers to ask for higher prices

Because mortgage rates are so competitive, a lot of people are clamoring to buy homes. That's something sellers are well aware of. And they're pricing their homes accordingly.

In July, the median price for active home listings was $385,000, says Realtor.com. That represents a 10.3% increase from a year prior. It also means that some buyers may not be able to afford a home in today's market -- even if they would've been in a solid position just a year ago.

3. It's leading to bidding wars

When there's not enough housing inventory to go around, buyers are often forced to battle it out over the same properties. And that sets the stage for bidding wars.

During a bidding war, two or more buyers go back and forth, raising their offers for a home, hoping the seller chooses them. But bidding wars don't just impact individual home values. They can also cause home prices in an entire neighborhood to rise, making it even harder for buyers to get in.

When will housing inventory pick up?

A big reason housing inventory may be so limited this year is general uncertainty surrounding the pandemic and economy. In the latter regard, things are improving. July's jobless rate was the lowest since the start of the health crisis, and there are millions of job openings today.

But it's hard to predict what direction the COVID-19 outbreak will take. In June, things looked pretty good, with vaccination rates up and case numbers down. But then the Delta variant took hold and fueled a surge in cases.

Until things settle down, we may not see a drastic uptick in homes on the market. That's something today's buyers should prepare for, and some may want to postpone their home searches until real estate inventory improves.