A Seller’s Market for Housing

The current housing shortage has been long in the making.

Owning a home has many virtues: it creates stability for a family, supports longer-lasting connections in a community and is a store of wealth for the home owner. For these reasons, home purchases have been both a personal aspiration and a policy priority for generations.

Today, these preferences have led to a fundamental imbalance. Potential buyers are finding a paucity of homes available for purchase.

The stock of homes for sale in the U.S. has fallen to levels last seen in the mid-1990s. Data provider Redfin observes the inventory of homes on the market holding in a range consistently more than a third lower than its pre-pandemic norms. Housing stock has not kept pace with population growth in many parts of the country. Higher interest rates were expected to cool the market, but with supply so constrained, house prices have continued to climb.

We can now look back on the pre-pandemic economic cycle and say that housing was under-built. After a housing bubble ignited a global financial crisis, caution from home builders was understandable. Residential investors were once bitten, twice shy. However, the steady recovery has equipped more consumers to step into home ownership; Millennials are ready to buy.

And then the stay-at-home urgency of the pandemic further distorted housing markets. The need for home office space prompted a rush to purchase homes and/or relocate in 2020 and 2021, leaving inventories depleted.