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There’s a reason 2023 has been such a frustrating year to buy a home. Not only are home prices and mortgage rates up, but housing inventory has been sluggish on a national scale.
As of the end of March, there were 980,000 housing units available for sale, according to the National Association of Realtors. That’s just a 2.6-month supply of homes, which is well below the six-month supply that’s commonly needed to fully satisfy buyer demand.
Now there are several reasons why housing inventory has failed to pick up. For one thing, higher mortgage rates are keeping more people in their homes, because current owners know that selling, for the most part, means having to go out and get a new mortgage at a higher interest rate.
Meanwhile, recent data revealed that new construction has also slowed down. And that means today’s low levels of housing inventory might be here to stay for a while.
Housing starts have stalled
In March, housing starts, a measure of new home construction, fell to 1.42 million, according to the Census Bureau (as reported by CNN). Now that might seem like a nice number, but actually, it represents a 17.2% decline from a year prior.
Housing starts actually started to drop last year as mortgage rates rose. But that trend has held steady, resulting in fewer new homes being built today.
Not only have housing starts slowed down, but building permits also declined in March. The number of permits issued for new builds was down 24.8% from a year prior.
When will U.S. housing inventory pick up?
Builder confidence plays a big role in housing starts. So for new home construction to increase, builders need to feel like buyers will jump at the opportunity to purchase the homes they’re constructing. But that may not happen until mortgage rates drop and the prospect of buying a home becomes more affordable.
Similarly, current homeowners may not be motivated to sell their homes until mortgage rates fall from where they’re at today. And if existing homeowners don’t want to sell, inventory is unlikely to budge.
All told, it seems like mortgage rates really need to fall in order to resolve the current housing inventory crunch. But we don’t know when that’s going to happen.
Borrowing is expensive for consumers across the board these days, but mortgage rates don’t always rise and fall in line with borrowing rates for other loans. If buyers retreat from the market in droves due to stubbornly high mortgage rates, then lenders may decide to start lowering their rates. But it’s hard to determine when we’ll get to that point.
As such, if you’re looking to buy a home today, you may need to accept the fact that you’re just not going to have a lot of inventory to choose from. A good bet in that regard is to order the home features you want by priority. That way, you might have an easier time finding a home to buy even when there aren’t many to look at.
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