If you are in the market for a new home, you are likely well aware of the current housing inventory shortage. The demand for housing already outweighed the supply when the pandemic struck. When the coronavirus changed life as we knew it, the housing inventory shortage became unprecedented.
City dwellers fled their cramped spaces in droves in search of suburban yards and fresh air. By December 2020, the national inventory of houses for sale declined by nearly 40 percent over the previous year.
The limited supply and huge demand have caused home prices to skyrocket. Bidding wars are the norm, not the exception.
What Causes an Inventory Shortage?
While the pandemic was the catalyst for the inventory shortage, it was not the only cause. In the wake of the Great Recession and foreclosure crisis, many single-family homes were purchased by investors, not homebuyers. While the majority of these investors are individuals seeking rental income, many are owned by private equity investors. The New York Times estimates more than 200,000 suburban and city single-family homes became single-family rentals over the past decade.
Then there is the Airbnb phenomenon. In attractive locations, many homes have been effectively removed from the market because investors are purchasing them for short-term rental purposes.
In addition, record low interest rates make this a good time for virtually anyone to buy a home. Even without a global health crisis, low rates would have ensured a seller’s market.
Are Homes the New COVID Toilet Paper?
Once the pandemic erupted, shortages became apparent. If you tried to buy a bicycle, RV, or a puppy, disappointment was likely. Of course, the most hoarded item was toilet paper. People were terrified of running out of one of modern civilization’s most basic items. Fast forward a year, and toilet paper is again plentiful on store shelves.
Are homes the new COVID toilet paper? Will the home-buying mania eventually calm down? The answer is: Sooner or later, it always does.
The End of the Pandemic Offers Hope
As vaccination rates increase and people feel safer, there is hope on the horizon. For obvious reasons, many potential sellers decided not to put their properties on the market during the pandemic.
Many potential sellers are Baby Boomers, a huge generation especially vulnerable to the coronavirus. They did not want strangers going through their homes and possibly infecting them, and they did not want to put themselves in the same situation by house-hunting during this time.
Now, many of those sellers will decide it is safe to place their homes for sale. Once they do, large numbers of properties that would otherwise have come onto the market in 2020 will start to move. That means a more normalized market for buyers and sellers.
Small landlords with single-family properties could not sell houses during the pandemic if tenants lost jobs and could not pay their rent. As home prices rose, rents have fallen – sometimes precipitously. Some of these landlords may find it makes more sense to sell their properties in the current market. Millions of homes may become available.
Then there is the end of the mortgage forbearance relief program. These payments helped many people struggling to make mortgage payments stay in their homes temporarily. The downside is that the end of the program means homeowners who are still unemployed will need to sell their homes or find themselves in foreclosure. There is an upside for those looking to buy, as inventory will increase.
Builders are constructing more homes, although this construction takes time. With the rise of telecommuting, there is less need for vast amounts of office space, a trend that should continue. Many of these commercial buildings and office parks are ideal candidates for conversion to housing.
How OVM Financial Can Help
At OVM Financial, we understand that the house buying process can sometimes seem overwhelming. As an OVM customer, we are here to help you every step of the way. Apply online and get pre-approved in as little as 15 minutes. Communicate with us via text, email, or phone whenever you need us. We can make your housing dreams come true.
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