Why Patience is Crucial when Buying a Home This Year

As a homebuyer, one of the big questions you are asking might be, “Why is it so hard to find a house?”. We’re currently in a sellers’ market, this means real estate is on the competitive side for buyers. 

The National Association of Realtors (NAR) says that homes are currently getting an average of 4.8 offers per sale, and that number isn’t going down. This is because very few homes are currently for sale.

Having low inventory in the housing market isn’t new, but it’s becoming more challenging than before to navigate. Danielle Hale, Chief Economist at realtor.com, explains: 

“The housing market is still relatively under supplied, and buyers can’t buy what’s not for sale. Relative to what we saw in 2017 to 2019, March 2021 was still roughly 117,000 new listings lower, adding to the pre-existing early-year gap of more than 200,000 fresh listings that would typically have come to market in January or February. Despite this week’s gain from a year ago, we’re 19 percent below the new seller activity that we saw in the same week in 2019.”

Homeowners slowed down their plans of moving during the pandemic, but this isn’t the main cause in today’s huge gap between the supply and demand of homes. Sam Khater, Vice President and Chief Economist at Freddie Mac, Economic Housing and Research Division, shares:

“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes...That decline has resulted in the decrease in supply of entry-level single-family homes or, ’starter homes.’”

When looking at the homes built in the U.S. by decade, the lack of new construction between 2010-2019 is alarming.

The number of newly built homes in the last decade is disproportionately lower than the homes built in the decades before and the rate of household formation, which according to the U.S. Census Bureau, has continued to increase. Khater also explains:

“Even before the COVID-19 pandemic and current recession, the housing market was facing a substantial supply shortage and that deficit has grown. In 2018, we estimated that there was a housing supply shortage of approximately 2.5 million units, meaning that the U.S. economy was about 2.5 million units below what was needed to match long-term demand. Using the same methodology, we estimate that the housing shortage increased to 3.8 million units by the end of 2020. A continued increase in a housing shortage is extremely unusual; typically in a recession, housing demand declines and supply rises, causing inventory to rise above the long-term trend.”

Freddie Mac estimates we need to build almost four million homes to catch up to the current demand. The good news is builders are working hard to get us there. The U.S. Census Bureau also states:

“Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,766,000. This is 2.7 percent (±1.7 percent) above the revised February rate of 1,720,000...Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,739,000. This is 19.4 percent (±13.7 percent) above the revised February estimate of 1,457,000....”

Lawrence Yun, Chief Economist at NAR, clarifies:

“The March figure of 1.74 million housing starts is the highest in 14 years. Both single-family units and multifamily units ramped up. After 13 straight years of underproduction – the chief cause for today’s inventory shortage – this construction boom needs to last for at least three years to make up for the part shortfall. As trade-up buyers purchase newly constructed homes, their prior homes will show up in MLSs, and hence, more choices for consumers. Housing starts to housing completion could be 4 to 8 months, so be patient with the improvement to inventory. In the meantime, construction workers deserve cheers.”