So, why are fewer homes selling? And why aren’t we seeing prices drop faster if less homes are being sold? In fact, prices are holding strong close to the highs from the last couple years. Unsurprisingly, it comes down to supply and demand. SUPPLY AND DEMAND
Inventory steadily increased through 2022, but has fallen steeply in the 4th Quarter. The number of homes for sale are still lagging behind historical levels. Supply is struggling to keep up. I have a few theories as to why...
1.
A lot of sellers who were planning to sell have already done so during the last 2 years, especially when interest rates were low. This includes investors who timed the market to sell their rental portfolios at peak prices. That supply has since dwindled. Homeowners are hesitant to sell now if they have to buy at higher interest rates. If they’ve owned their home for more than a few years, they probably refinanced when the rates were low making it a financially painful proposition to buy now at higher interest rates and at higher prices.
2.
3. New construction does not seem to be adequately supplementing the supply of existing homes. There is higher risk for builders to start new projects in the midst of inflation, supply chain issues and a dynamic housing market. Plus, not all supply is equally in demand. Affordability is a major constraint and so many first- time buyers (who are driving demand) cannot afford new construction. Even though 2022 had a higher % of sales relative to recent years, we are still feeling the after-effects of the lack of builds after the crash of ’09.
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