Why Are There So Few Homes For Sale?
The stock market was crashing and no one knew what would happen next. It was March 2020.
For a week, the Nashville real estate market was virtually silent. “Who would list in these conditions?”
A week later, a house went on the market; and then another - they were all at full asking price. The street had spoken, the housing market was not going to be affected by Covid-19. In the months following, home prices jumped 10% due to lack of inventory. As the year continued , real estate professionals only saw the trend continue: inventory was low, demand was high.
Now, in 2021, we are still asking the question, “why are there so few homes for sale?”
In May 2021, there were 57% less homes for sale than there were in May 2020. That means there are less homes for sale now, than there were at the peak of the shut-downs.
So we go back to the question: Why?
We all know the Fed initiated quantitative easing which sent interest rates to all-time lows early into the pandemic to help stimulate the economy. Additionally, we know many cities had stay-at-home orders and others had full-on lockdowns. Below is a sequence of elements I believe created this inventory shortage.
Quantitative easing (low interest rates) = lots of refinancing
Refinancing = lower monthly payments / more cash in pocket
Stimulus checks = even more cash in pocket
Pandemic-related closures = lots of at-home time
More cash + more time at home = DIY time (or call your favorite contractor time)
Additionally, we had other external factors such as:
Mass migration away from mega cities
Investment firms and institutional money started purchasing residential properties as an investment strategy
In short, there is higher competition between individual buyers and there’s a keen interest by investment firms.
Now, this inventory shortage trend began with people not wanting to sell their homes for fear of germ spreading, but by the end of 2020, we were seeing an exacerbated inventory shortage in part by homeowners enjoying their own homes and new transplants trying to buy in the area.
The chart to the left shows the trending shortage of homes for sale.
As you can see, every month, there is less inventory than there was in the previous year. So while homeowners are enjoying their new decks and deeper pockets, families and transplants desperately begin trying to outbid each other for the few homes that are on the market. This inflated prices, making it even less affordable than it already was.
This started a second wave of issues: affordability
Anyone thinking about selling realized they wouldn’t be able to re-buy in their same city, because they would be priced out. This created an even heavier firm-footedness by current home-owners. “Why risk selling and upgrading to the home down the street, when we might not be able to get the home down the street?”
So many home owners decided to stay put, enjoy their home, and ride the wave until things settled down.
Other reasons for the shortage? New constructions delays (supply chain shortages, lumber prices, etc.), tornado damage from March 3, 2020’s storm left hundreds of homes in disrepair, and then again with flooding damage in March 2021. Like most “problems”, there are normally many contributing factors, but I would posit the above 7 are what are causing the insatiable seller’s market in Nashville, TN.
There are no two ways about it: it’s difficult to be a buyer right now, especially if you’re in the entry-level market. However, if there doesn’t seem to be any good news for buyers, remember this: many investors thought Nashville would peak around three years ago and interest rates still remain at all-time lows.