Buying a home has been a struggle for many people in recent months. A big reason boils down to the combination of expensive rates for mortgage loans, elevated home prices, and low inventory.
Of course, these factors all go hand in hand. With mortgage lenders imposing higher rates on borrowers, current homeowners don’t want to move. Doing so, for many people, will mean giving up a lower mortgage rate and swapping it for a higher one.
But because people don’t want to give up their mortgage rates, housing inventory isn’t increasing. And because the demand for homes still exceeds the available supply, housing prices have risen.
In November, the National Association of Realtors (NAR) reported that there was a 3.5-month supply of available homes on the market. But is the inventory situation getting better? Unfortunately, that does not seem to be the case.
Housing inventory shrunk in November
The NAR says that housing inventory fell 1.7% in November compared to October. That’s not a good thing when buyers are so desperate to see the opposite happen.
Now, to give November’s 3.5-month supply of homes some context, it can easily take a six-month supply of homes to meet buyer demand in full. So November’s supply represents a notable gap. Unfortunately, until mortgage rates come down to a more moderate level, real estate inventory is likely to remain stagnant.
Many homeowners locked in sub-3% mortgages in 2020 and 2021. It’s hard to make the case to swap a rate like that for a rate that’s above 6.5%, which is what the typical 30-year mortgage costs today.
How to cope with a low-inventory market
If you’re trying to buy a home, you may get tripped up by today’s low inventory. And inventory may not pick up for a while. So you may have to work with what you have.
One thing you should do is make a list of your top deal-breakers — but limit it to just a few things. You may, for example, say that you absolutely will not buy a home with less than three bedrooms. Similarly, you might say that two full bathrooms is the minimum number you’ll accept.
That’s totally fine. But try not to impose too many top deal-breakers, because in a market that lacks inventory, that could mean never finding a home that meets your needs. Instead, put those less-important items on your “less important” list.
For example, you may really want a home with a finished basement. But it could pay to designate that as a less important item. If you find a home with an unfinished basement, you can finish it as time and money allow. On the other hand, it may not be possible to add another full bathroom to an existing home without doing a major overhaul that involves running new plumbing and ventilation. To put it another way, finishing a basement might be a much less exhausting and expensive project.
We may not see real estate inventory pick up for quite some time. So as a buyer, your best bet may be to identify your top deal-breakers, but loosen up on other requirements.
