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Housing Demand Continues and So Does the Housing Shortage

How do you define insanity? Some say it is doing the same thing over and over and expecting different results. Many would-be buyers are certainly feeling a bit insane as they continue to vie for property in today’s market. In fact, there is a term called “inventory insanity” that is being tossed out quite a bit these days.

What is Inventory Insanity?

Simply put, it is an extreme, unprecedented shortage in the market that is causing otherwise logical buyers and their agents to go a little bit crazy. In some cases, a lot crazy. As a buyer, you want to be competitive. By all means, sharpen your pencil to craft a strong, competitive offer. But, waiving all your rights to secure a property is quite another. In some cases, that is what we are seeing. Buyers are waiving home inspections, termite inspections, surveys, and giving up reasonable asks like cleaning and pet treatment to be competitive. To secure a property. Each situation is unique. Every buyer must decide what to do. And, on the advice of their agent. The point is that the shortage of housing is creating insanity in the market.

Following is an excerpt from an Inman News article written by Jim Dalrymple II that speaks to what we are experiencing in today’s market:

“There’s something really strange happening right now: There are seemingly no homes for sale, and yet the number of actual sales this year is probably going to be up compared to 2020.  How could that be? If there’s a housing shortage, shouldn’t that mean fewer homes will sell?

These questions get at the heart of the current inventory shortage. And more importantly, they hint at how it might, eventually, resolve.

As Inman has reported this week, agents are exhausted, consumers are literally crying after losing bidding wars, and economists are calling the situation unprecedented. On the other hand, data that the National Association of Realtors provided to Inman projects a total of nearly 6.5 million existing home sales in 2021. 

What these numbers highlight is the fact that “inventory” is a measure of the balance between supply and demand. For example, if the number of homes on the market suddenly doubled, there’d be more supply. But if the number of hopeful buyers quadrupled at the same rate, all those new listings still wouldn’t be enough. There’d be an inventory shortage. And that’s basically what’s going on right now: Demand is outpacing supply.

NAR data shows that despite the shortage, the number of homes sold each month has been up year-over-year for most of the pandemic. 

Put simply, it’s because it shows that there are two ways out of this mess: Either supply has to go up to meet high demand, or that demand has to go down. In reality, the solution will probably be some combination of the two, but unfortunately either way the current shortage isn’t likely to dissipate in the immediate future.”

Two Ways Out

I think Jim nailed it. There are two ways out — supply has to go up, or demand has to go down. But, the reality is that inventory shortages are likely to stick around in some form or another for a while. And demand? Well, if interest rates rise, we may see demand slow. But, for now, the market hasn’t hit the affordability breaking point, so you can expect more “inventory insanity.” For now.

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