Insights

Why Everyone’s Making Such a Big Deal About Housing Inventory

Today’s housing market is an extremely difficult one to navigate. Granted, that’s pretty much been the case since mid-2020. But whereas mortgage rates dropped to record lows on the heels of the COVID-19 outbreak, they’re now sitting at their highest levels in 13 years. Making matters worse is that home prices are way up across the board, throwing buyers into an almost impossible position.
But it’s not just rising mortgage rates and sky-high home prices that are making headlines. The amount of available inventory in the real estate market has also been a big focus — and for good reason.
Image source: Getty Images.

Low inventory is driving higher home prices
As of late March, the number of unsold existing homes sat at 950,000 units, according to the National Association of Realtors. That represents a two-month supply of available homes.
Now on one hand, that’s a higher number of available homes than we’ve seen in recent months. But for context, it takes a four- to six-month supply of housing inventory to create an equalized housing market, where neither buyers nor sellers have a clear upper hand. Right now, sluggish inventory is giving sellers an obvious edge — and creating a market that’s super tough for buyers to navigate.
It’s also worth noting that normally, spring is when home listings start hitting the market in droves. But that doesn’t seem to be happening this year, nor did it happen in 2021.
As long as housing inventory remains low, higher home prices will remain sustainable. That’s a great thing for sellers — but for buyers, not so much.
Low inventory could also prevent a housing market crash
But while limited real estate inventory is making life difficult for prospective homebuyers, it’s also not a totally bad thing. In fact, low inventory could be the one thing that keeps home prices from crashing.
Years ago, during our last housing market crash, the supply of available homes well exceeded the number of listings on the market today. Because inventory is so limited, demand for homes should continue to exceed supply, despite unfavorable conditions like soaring mortgage rates and home prices. That should give today’s sellers and homeowners some peace of mind and prevent a drastic drop in property values.
When will housing inventory pick up?
It’s hard to say. Seller hesitancy could easily be explained by the pandemic up until recently. But seeing as how there’s been a shift toward learning to coexist with COVID-19, it’s getting harder to attribute a lack of inventory to pandemic-related concerns.
That said, while the U.S. economy is in good shape from an employment standpoint, inflation has been rampant, and many experts are already sounding a warning about an impending recession. It may be that existing homeowners would rather stay where they are than change their financial situations at a time when the economy is at risk of taking a turn for the worse.
As such, it’s hard to predict when housing inventory will ramp up in a meaningful way. And until that happens, buyers might continue to struggle with today’s inflated prices.
The Motley Fool has a disclosure policy. –

Today’s housing market is an extremely difficult one to navigate. Granted, that’s pretty much been the case since mid-2020. But whereas mortgage rates dropped to record lows on the heels of the COVID-19 outbreak, they’re now sitting at their highest levels in 13 years. Making matters worse is that home prices are way up across the board, throwing buyers into an almost impossible position.

But it’s not just rising mortgage rates and sky-high home prices that are making headlines. The amount of available inventory in the real estate market has also been a big focus — and for good reason.

Image source: Getty Images.

Low inventory is driving higher home prices

As of late March, the number of unsold existing homes sat at 950,000 units, according to the National Association of Realtors. That represents a two-month supply of available homes.

Now on one hand, that’s a higher number of available homes than we’ve seen in recent months. But for context, it takes a four- to six-month supply of housing inventory to create an equalized housing market, where neither buyers nor sellers have a clear upper hand. Right now, sluggish inventory is giving sellers an obvious edge — and creating a market that’s super tough for buyers to navigate.

It’s also worth noting that normally, spring is when home listings start hitting the market in droves. But that doesn’t seem to be happening this year, nor did it happen in 2021.

As long as housing inventory remains low, higher home prices will remain sustainable. That’s a great thing for sellers — but for buyers, not so much.

Low inventory could also prevent a housing market crash

But while limited real estate inventory is making life difficult for prospective homebuyers, it’s also not a totally bad thing. In fact, low inventory could be the one thing that keeps home prices from crashing.

Years ago, during our last housing market crash, the supply of available homes well exceeded the number of listings on the market today. Because inventory is so limited, demand for homes should continue to exceed supply, despite unfavorable conditions like soaring mortgage rates and home prices. That should give today’s sellers and homeowners some peace of mind and prevent a drastic drop in property values.

When will housing inventory pick up?

It’s hard to say. Seller hesitancy could easily be explained by the pandemic up until recently. But seeing as how there’s been a shift toward learning to coexist with COVID-19, it’s getting harder to attribute a lack of inventory to pandemic-related concerns.

That said, while the U.S. economy is in good shape from an employment standpoint, inflation has been rampant, and many experts are already sounding a warning about an impending recession. It may be that existing homeowners would rather stay where they are than change their financial situations at a time when the economy is at risk of taking a turn for the worse.

As such, it’s hard to predict when housing inventory will ramp up in a meaningful way. And until that happens, buyers might continue to struggle with today’s inflated prices.

The Motley Fool has a disclosure policy.

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