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Shop Talk - The Real Estate Agent Podcast

Real Estate Agent Podcast Episode 80: The Current State of the U.S. Housing Inventory

Episode 80: The Current State of the U.S. Housing Inventory
November 18, 2021

Low supply and high demand will continue to frustrate homebuyers across the U.S. How can prospective homeowners find relief, both in the short and long term?

The imbalance in the supply of homes and the number of people who want to become homeowners requires the U.S. to acquire roughly 5.5 to 6.8 million more homes.

Brett Van Alstine

About This Episode

The lack of housing supply in the U.S. has been a topic of discussion since the onset of the COVID-19 pandemic. Many Americans faced a massive shift in lifestyle that further pushed buyers to pursue housing in affordable markets that were already strained by a lack of available homes. This situation exacerbated the issues of housing supply and affordability. 

According to a recent report by The National Association of REALTORS®, the imbalance in the supply of homes and the number of people who want to become homeowners requires the U.S. to acquire roughly 5.5 to 6.8 million more homes. How can potential homebuyers find relief, both in the short and long term?

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Episode Transcript

Intro: Hello and welcome to ShopTalk, the real estate show. I’m Brett Van Alstine and on today’s episode, we’re going to talk about the current state of the country’s housing market inventory. The U.S. housing market has recovered better than most experts projected following the COVID-19 pandemic. However, while real estate activity and housing demand are high, the lack of housing supply will create more troubles in the long-term.

In fact, it’s as though much of the housing market has gone missing.

There are roughly 140 million homes in the United States, but according to a recent report by The National Association of REALTORS®, that won’t be enough to house everyone looking to own property. The imbalance in the supply of homes and the number of people who want to become homeowners requires the U.S. to acquire roughly 5.5 to 6.8 million more homes. Now, this isn’t necessarily new: for example, in 2019, the same report found a shortage of 3.84 million homes. But the red-hot 2021 housing market we’ve experienced has made it worse.

When you dive into this year, new listings have gone up, which is great for the short term. But, when you look at the bigger picture, the current inventory of homes throughout the nation is still too low.

New housing data shows inventory hit a 2021 high in September, according to’s Monthly Housing Report. Nearly one-third of the 50 largest metros continued to see increases in newly listed homes compared to last year. Seller confidence has once again increased, yet these newly listed homes are hitting the market following the typical seasonal pattern.

Available national inventory or active listings reached a new high of 646,053 for-sale homes in September 2021. In spite of this impressive figure, U.S. housing inventory declined 22.2% year-over-year in September, a slight improvement over August, which featured a 25.8% decline. However, while this increase in for-sale homes seems promising, it’s still 50% below the level of homes for sale in 2019, which at its peak, reached 1,250,000 homes for sale.

The largest source of new homes will be from existing homeowners listing their property and moving to a different abode. This alone cannot curb the lack of U.S. housing inventory, though. As homeowners will find it difficult to buy a home after selling their current property, we could see new listings halt in 2022.

In key cities across the country, low housing inventory continues to worsen and isn’t projected to get better anytime soon.

This month, Forbes identified the top 20 cities with low housing inventory. Low housing inventory is hitting the West Coast and Texas harder than the Midwest or East Coast. On average, cities in California, Texas, Washington, and Utah all have less than one month of supply of housing inventory. This is the lowest supply on record and could spell trouble in the future.

For example, one of the hardest hit cities is Sunnyvale, California. As of September 2021, Sunnyvale’s available inventory is down to just 68 homes, a decline of 52.8% from the previous year. This squeeze on available homes has sent the median sale prices skyrocketing from $1.4 million in 2020 to $1.7 million in September of this year.

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After the break, we dive deeper into the factors facing the U.S. housing supply and possible solutions that can curb the lack of housing inventory.

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What’s driving this lack of housing inventory? A couple of factors have shaped the current landscape homebuyers and real estate agents are now navigating:

First, record-low mortgage rates have contributed to the supply shortage by inviting an influx of new buyers who have quickly absorbed any available inventory. As a result, homeowners who may have considered selling will likely refinance their existing mortgages and buckle in for another couple of years of homeownership instead. The average 30-year fixed mortgage rate fell to 3.20%, down four basis points from a week ago. Mortgage rates are not likely to hover around 3% for long, but if they continue at the current rate, then new listings and overall buying/selling activity will likely remain the same.

Second, the price of a home has drastically increased. The pandemic shifted most Americans’ needs and lifestyles, which pushed homeowners into different locations and types of homes, exacerbating the existing lack of housing supply. This rise in activity and competition has resulted in a sharp price increase for both owned homes and rental units. National home prices increased by 7-19% year-over-year every month from September 2020 to June 2021. The U.S. median home price is at a near record-high of $374,900 and is up 20.6% from 2019. Demand is expected to decrease, and projections for home prices in 2022 are set to increase 7%.

Both of these factors combined led to the third issue affecting the housing market, which is a lack of affordable housing.

The main problems facing the housing market are not solely based on the sharp increase in home prices, but high home prices have squeezed many prospective homebuyers out of the market, resulting in a lack of affordable housing, which includes for sale properties and rental properties. The number of homes constructed below 1,400 square feet, considered “starter homes”, has decreased roughly 80% since the 1970s, according to researchers at Freddie Mac.

According to the National Low-Income Housing Coalition, there is a shortage of more than 7.2 million affordable rental homes for extremely low-income renter households — those with incomes at or below the poverty level or 30% of their area median income. Moreover, the lack of affordable for-sale homes drives up rent and increases prices of multifamily investment properties.

4. The fourth and last factor affecting the housing market is a lack of new development. Simply put, the housing supply has not kept pace with the population growth in the U.S.

This lack of new housing being built illuminates larger looming issues — mainly the setbacks placed on new home construction. Developers say that land availability, zoning, density restrictions, regulations, construction costs, and a lack of skilled workers are all contributing to the issue of housing. These hurdles make it almost impossible for homebuilders to make a profit on entry-level homes, which is the level of affordability that’s needed the most in today’s market.

In the beginning of 2021, the Mortgage Bankers Association (MBA) forecasted single-family housing starts to be around 1.134 million with around 1.165 million single-family homes projected to be built in 2022 and 1.210 million in 2023.

As of September 2021, there were 1,589,000 building permits issued, 1,555,000 housing starts, and 1,240,000 homes completed. The pace in new construction has slowed in September, as lumber prices went from around $400 per thousand board feet in August to $628 in September. Lumber prices are high, but compared to the peak of $1,711 per thousand board feet in May, it’s a positive sign indicating lowering costs in the future.

And if you thought lumber prices were high, let’s talk about paint. According to Sherwin Williams, the cost of the raw materials used to create paint is on the rise, and the company will increase prices on all American paint by 7% (set in effect in August of this year).

To break this down: Two gallons of paint covers about 800 square feet - or an average-sized apartment. Those gallons cost $70 now. But after the price increase, the cost per gallon will be $75. It doesn’t sound like much of an increase, but if you’ve got multiple rooms or dozens of properties, that $5 difference is going to add up.

When these issues resolve, developers should focus their projects on market needs, and not trying to create a market for a need as seen post 2008. Single-family homes and rental properties built after the housing crisis were expensive and luxurious, and very few were able to afford them.

We know which issues are facing the housing market, but what are the possible solutions? Beyond the simple answer of “we need more housing supply”, developers are in need of help.

“We’ll need to do something dramatic to close the gap,” NAR’s chief economist, Lawrence Yun, said in a press release. "A severe lack of new construction and prolonged underinvestment [have led] to an acute shortage of available housing… to the detriment of the health of the public and the economy. The scale of underbuilding and the existing demand-supply gap is enormous… and will require a major national commitment to build more housing of all types."

NAR proposed increasing the housing supply by creating or expanding tax credits, loans, or grants for builders who renovate or build new housing in low-income areas and who convert old malls and factories into homes, turning liabilities into money-making assets. Here’s a fact: 25% of malls are expected to close within the next three to five years, which could become viable housing options in the right hands.

The association also asked for incentives for cities to allow denser zoning. Zoning and permits will continue to be a thorn in the side of developers who want to meet the need for housing in urban markets.

Between a need for affordable housing and a lack of current supply, much is left to be desired in the U.S. housing market. We can only hope that improving supply chains combined with a drive to establish more affordable housing stock will help rebalance the scales. Which of the potential solutions do you think will come to fruition first? Are there any solutions that we didn’t cover in today’s episode? Let us know how you’d solve the U.S. housing crisis in the comments down below!

Brett: That’s it for this episode, thanks for listening! If you enjoyed the podcast, you can subscribe to us and leave a review on your podcast player of choice. Shop Talk is a production of The CE Shop.