Housing Inventory Down, Interest Rates Up!

Posted by Rick Delgado on Wednesday, April 13th, 2022 at 12:02pm.

Housing Inventory Down, Interest Rates Up

Every American trying to find a house in today’s market will face an interesting reality: there’s a lack of options. This isn’t because homebuyers can’t find homes that fit their wants, but instead because of low inventory plaguing communities across the country. With interest rates up and a low housing inventory, what’s the reality of those looking to buy or sell real estate in the market? Here’s what the latest numbers suggest.

What exactly is a low housing inventory?

Low inventory means strong buyer demand–people looking for houses–but not many sellers. This causes an imbalance creating a shortage of available homes for sale when this happens. Demand was higher than the current supply, so there was low inventory. 

Why is housing inventory low?

After the COVID-19 pandemic, people were more reluctant to sell their homes because there was a ton of uncertainty. At the same time, builders either stopped building or reduced their efforts significantly. With no new homes being built and existing homes not being sold, there was more demand than supply, causing a low housing inventory. 

Low-interest rates at the moment also played a contributing factor. With mortgage rates averaging 3.11% for a 30-year fixed-rate mortgage, many homeowners refinanced their homes and stayed put in their houses. As people chose to stay home, the normal cycle of buying-selling homes naturally slowed down. 

Another factor was the lack of new construction. Permits for new constructions in 2020 were down by 24%. The lack of consistency in building supplies and workers made it almost impossible for the construction sector to fire gear again, thus, resulting in low inventory. 

How do interest rates affect the housing market?

Fast forward to 2022, and it seems higher interest rates are bringing the housing market back up and running. Reports suggest new listings for homes have risen 8% from a year ago. While the active inventory is still 13% under, it might be on track to stabilize. 

While homeowners are ready to sell, buyers think twice about it. In the past few weeks, the average rate on the 30-year fixed mortgage surpassed 5%, which is probably why fewer buyers are out there. Some homeowners are reconsidering their prices and potentially stabilizing the market. Roughly 12% of homes for sale had a price reduction in the past weeks. 

And while the market is still too volatile to make strong predictions, with the housing inventory down and interest rates up, at least some homebuyers are hoping for home prices to come down to pre-pandemic numbers to make up for the higher interest rates. 

Geraldine Orentas is a writer in partnership with vacation rental accounting service, Ximplifi. 

Rick Delgado

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