WRITTEN BY: MAX FITZGERALD
DECEMBER 2021

 

It is challenging to articulate just how dire the current inventory levels are today.

In looking at supply and demand, when there is a very limited supply that is matched with extremely strong demand, the supply issue not only persists, but can become even more severe. That is precisely what has occurred in 2021.

With the perfect storm of low supply and historically low interest rates fueling buyer demand, this irregular real estate market looks to continue well into 2022.

In today's report, I'd like to examine the state of the real estate market, as well as the current supply and demand metrics to help you better contextualize the good and bad about this iteration of the real estate market.

 
 
Inventory Catastrophe

INVENTORY CATASTROPHE

 

How Did We Get Here?


Between 2017-2019, the active housing inventory averaged 12,001 homes available for sale at any given time. This time period could be characterized as a strong, but balanced market. There wasn't a lack, or over-saturation of inventory, and interest rates fluctuated between 3.8% - 4.8% which kept buyer demand at a healthy pace.

The onset of COVID in 2020 was the catalyst of diminishing inventory throughout the country. In 2020, active housing inventory dropped to 9,652 available homes to purchase, which was a 20% drop in inventory versus the few years prior.



2020 versus 2021


As we all know, interest rates have been historically low since the onset of COVID. As a result, buyers have jumped at the opportunity to purchase a home in order to lock in the attractive 30-year fixed rate. This buying frenzy has further exacerbated the supply crisis throughout 2021.


To put today's inventory levels into perspective, 2021 has averaged 7,256 homes available for sale. This is a 40% drop in inventory from the averages between 2017 - 2019.

Furthermore, the 3-year average (prior to COVID) for the end of November is 11,752 available homes to purchase. This means that in years prior, there are usually 79% more homes available for sale versus where the market currently sits today!



Millennial Buyers


Millennials in their early 30's have become one of the largest buying groups in this marketplace, and have contributed significantly to the demand curve.


In fact, Millennials are the strongest first-time home buyer demographic on record, and they are doing what generations before them have done. They are leaving the family home or the multiple roommate situation, getting married, having babies, and want a piece of the proverbial "American Dream". They are adding pressure to the demand side of the equation for housing.



The Bottom Line: Inventory will continue to be strained through 2022 perpetuating this competitive real estate market


Unless there is a fundamental shift in interest rates and/or a flood of new inventory hitting the market, this competitive and one-sided real estate market will continue through 2022. Real estate is cyclical, and the market will correct. No one knows when, but it is inevitable.


My advice to buyers throughout this year has been, "If you are in the market to buy and have a medium to long-term outlook on your purchase, buy in this market so that you can lock in these interest rates." I cannot stress the importance of that enough. Do not get frustrated. Do not get fatigued.

As the economy continues to recover, interest rates will creep higher and higher. Without a clear indication that inventory will normalize anytime soon, this market is a great opportunity to lock in those interest rates and keep your monthly mortgage payments as low as possible.

 
 

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