Explaining Today’s Housing Shortage
The current housing market is experiencing a severe shortage of available homes for sale. Several factors have contributed to this shortage.
Key Factors Behind the Shortage
There are some market conditions impacting this shortage. Here are a couple of the big ones:
Decline in New Construction
Builders have not been constructing as many new homes over the past 14 years. The pace of new home construction fell significantly after the 2008 housing crash. While construction has recovered somewhat, we are still not building enough new homes to meet demand.
Homeowners Staying Put With a Lower Mortgage Rate
Many existing homeowners are hesitant to sell their homes and move. With mortgage rates rising, homeowners want to hang onto their current low rates. Moving would mean taking on a new mortgage at a higher rate. So fewer existing homes are coming onto the market.
As of 2022, about 70% of mortgage rates remain under 4%. These ultra-low rates make selling less appealing for current homeowners. Low rates also drive higher demand from buyers, further tightening inventory.
Americans are living in their homes longer than in previous decades. Older homeowners are less likely to sell or downsize preferring to age in place. With fewer seniors putting homes up for sale, inventory remains lower.
Until more homes are built and existing homeowners feel comfortable listing their properties, tight inventory will likely persist. Higher mortgage rates in 2023 may motivate some sellers. But construction must also accelerate to balance supply and demand. Ongoing housing shortages will continue to drive competition among home buyers.
Summary: A wave of factors have combined to create a shortage of available homes in today’s housing market. Key reasons include a long-term slowdown in construction, homeowners’ reluctance to sell and move, and forfeiting their historically low mortgage rates add up to an aging population staying put. More new housing must be built to help fill the shortage. Click here to see the impact on the St. Louis Real Estate Market