There’s a reason buying a home has been such a challenge over the past couple of years. Since the start of the pandemic, housing inventory has plunged. That’s created a classic low-supply, high-demand situation that’s driven home prices upward.
And the worst part? We could be in for a few more years of record-low housing inventory.
Buyers might have a tough road ahead
Today’s housing market is notably challenging for everyday buyers and real estate investors seeking out income properties. Not only are home prices sky high, but mortgage rates have risen sharply since the start of the year. That’s created a massive decline in affordability.
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Now so far, rising mortgage rates don’t seem to be driving buyers away. And as long as housing inventory remains low, sellers might continue to get away with charging sky-high prices for their homes, pushing buyers to their limits.
On the one hand, it’s fair to assume that property listings will pick up as sellers are able to move past some of the economic and pandemic-related concerns that have plagued them since early 2020. But Zillow doesn’t really expect that to happen anytime soon.
In fact, according to Zillow’s most recent Home Price Expectations Survey, housing inventory won’t reach pre-pandemic levels until 2024 at the earliest. That puts buyers in a very tough spot.
If inventory doesn’t pick up, bidding wars could continue to dominate the market. And those commonly drive home prices to unreasonable levels.
Over the past two years, U.S. home values have risen 32%. Meanwhile, total inventory has dropped from a monthly average of 1.6 million units in 2019 to just over 1 million in 2021, per Zillow’s estimates. And so far, inventory has not risen this year.
To be fair, the winter season is hardly the prime time for property listings. But if inventory doesn’t pick up substantially in the spring — which it may not — buyers could end up grappling with record-high home prices for at least another year, if not longer.
Waiting to buy could pay off
Last year, lower mortgage rates made the case to move forward with a home purchase despite higher property values. This year, borrowing isn’t nearly as affordable. As such, it could pay for regular buyers and investors alike to pull out of the market, give it some time to cool off, and then try again in 2023 or even 2024.
While there’s no guarantee that it will take two years for real estate inventory to return to pre-pandemic levels, it’s a possibility buyers need to brace for. And that could mean adjusting plans and resetting expectations.
Buyers who purchase a home today risk not only overpaying but getting locked into a mortgage that’s tough to refinance as property values start to drop (which is bound to happen at some point in the not-so-distant future). And investors risk landing in a similar boat — either that, or tying up cash in properties and limiting their opportunities elsewhere.
All told, it’s just a really, really difficult time to buy. And so investors in particular may want to look at other ways to build their real estate portfolios, such as choosing REITs (real estate investment trusts) over physical properties.