In many areas throughout the United States, there are simply not enough homes to meet buyer demand. Yes - there is a housing shortage!
In 2020, the low supply issue worsened in many cities and towns. Fears around the Coronavirus has caused many potential sellers to delay putting their home on the market. On top of that, low mortgage interest rates have made demand even higher as many states begin to reopen.
This has many potential buyers feeling frustrated. This article will give you more of the story about the shortage and some tips to find a home despite low inventory.
The HyperLocal Story
When you read a story about national real estate news, you want to verify if it is valid for the market you are buying in.
Real estate markets are different state by state, town by town, and even neighborhood by neighborhood.
So how do you know if there is a shortage near you? Read on to find out.
Freddie Mac’s Report
The new report states that there is a shortage that will need an additional 2.5-3.3 million additional homes to meet all the buyer demand.
However, even more, interesting about this new report is that it breaks down the statistics state by state. What was found was, the shortage is even more severe in certain areas. Not surprisingly, these areas were in high demand because of being close to a city with lots of infrastructure and excellent job prospects.
For example, California, Washington DC metro area, Colorado, and others showed significant shortages. Other states had moderate to severe shortages. And some states did not have a shortage at all.
Again showing how hyper-local real estate is. This could be broken down even city by city, but they stuck to the state level.
Supply & Demand, Bidding Wars, Rising Prices
So what does it mean to be looking in a market that currently has a housing shortage? In short, there are more buyers who want to buy homes than there are available homes for sale.
If you are buying, that means you will often be competing in situations where there are multiple buyers bidding on one house, aka “bidding wars.”
Homes that are priced to include the most amount of buyers can be even more competitive. For example, townhomes, condos, and small single-family homes that are priced on the lower/average price of the market have the most buyers.
If you are looking for luxury real estate, you may find less bidding wars (but of course, each house and market is different).
In markets with lots of homebuyers and low inventory, home prices tend to rise. So if you do live in an area with a shortage, you can gain some appreciation of your home. This can be good for sellers because they can sell their homes quickly for more money.
The Solution: New Home Construction
So what can be done about this housing shortage? Will it eventually be more balanced?
The answer is, according to Freddie Mac (and common sense) is for new home builders to get busy and build more homes. This is especially true in areas that have the most severe shortages.
Not only do builders need to build more homes, but they need to increase the pace that they are developing. Freddie Mac estimated that the number of new homes being built does not meet the growing population who are actively looking for housing.
This means that local governments’ planning and zoning commissions need to also work with builders to get projects approved and continue to improve infrastructure (roads, power, sewer lines, etc.) to make sure that the new homes can be supported.
This can help make the shortages less severe and hopefully balance the market.
Should I Buy a Home in a Market With Low Supply?
This cannot be fully answered here. It depends on your situation. Whether you should buy, rent or live in another area depends on a wide variety of factors.
But housing shortages are most common in some of the most popular areas in the US with the most robust job markets. So chances are, you have a job that is bringing you to a sought after area.
If you plan to stay long term in one area buying a home is part of the path to long term net worth.
So even though it can be frustrating when every great home that comes up for sale has multiple offers, toughing it out is often worth it.
This is especially true when there are low-interest rates. On a 30 year loan, locking in a low mortgage rate can save you a tremendous amount of money on interest if you own the property long term. Working with a mortgage broker who can find you the right loan for your situation is key.
Not to mention, there is a reason that areas with home supply shortages are popular. And you can also benefit from the long term demand in your area.
Tips for Finding a Home In a Low Supply Market
Here are some tips if you are looking to buy a home in a market where there is a shortage of homes for sale.
Be patient. Do some research, and get clear on what you are looking for. You may not win your first offer, but persistence pays off to get into a home.
Work with experienced professionals. Your mortgage consultant and real estate agent can make a difference between success and failure. Find ones who are trustworthy, know the local market, and put your goals first.
Be ready. Trying to scramble to get everything in order to get an offer together after you find a great home may mean you can miss out. If you know there is a housing shortage in your market, things move fast.
Look at new homes. If your move-in date is flexible, build a new home. Most likely, you can find a new home builder with a community or portfolio near you. For more information, see this guide on new homes.
Make a strong offer. When there is more than one offer, you may only get one shot at the home. Do not expect a counteroffer or lots of back and forth.
Final Thoughts on The Real Estate Housing Shortage
Is there a current housing shortage in the US in 2020? Yes. Many analysts and a close look at the data show that.
But even more important is to look at these numbers state by state and city by city. If you are looking to buy a home, you may be competing. But persistence can mean you will have a place to call home, potentially an excellent mortgage rate, and be in a great area.
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About the author: The above article on housing shortages in the US was written by Will Rodgers. Will is a real estate expert, new home construction specialist, web marketing guru, and a top-producing licensed real estate agent in Northern Virginia. He is also an avid real estate investor and is passionate about seeing clients build wealth through real estate.