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Buying a house in the low-inventory housing market that we're currently experiencing can be challenging. With limited homes for sale and high demand, you may have to consider a few extra steps to get your dream home.
That's why we're sharing tips for what to do when it feels like there are no houses on the market, but you're ready to buy.
Homes are being sold quickly in low inventory markets. Buyers need to act swiftly to secure a property.
How to Buy a House in a Low-Inventory Market
Finding the right house in the current market conditions can be challenging.
The current housing inventory in the US, or the amount of homes for sale available, is significantly lower compared to previous years. As of May 2023, there are about 1.47 million homes currently for sale. Although this figure is higher than the all-time low of 910,000 houses reached in 2022, we're still dealing with a significant housing shortage. For reference, in 2007, there were over 4 million homes for sale available in the US.
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Low Inventory Real Estate: What is Housing Inventory & Why Is Home Inventory So Low?
"Housing inventory" refers to the number of homes available for sale in a given market. All kinds of factors contribute to the low inventory situation, including these five:
1. High demand: The pandemic led to a shift in work patterns, with many people working from home. This increased the demand for larger homes with more space, as well as homes in more rural areas. Low interest rates made it more affordable to buy a home. This also led to an increase in demand, as people were able to borrow more money to buy a home.
2. Limited new construction: The construction industry has faced challenges in meeting the rising demand for housing. Factors such as labor shortages, supply chain disruptions due to the pandemic, and rising construction costs have hindered new construction projects.
3. Market conditions: Post-pandemic factors like high mortgage rates and economic uncertainties have discouraged people from listing their homes altogether, further exacerbating the housing shortage.
4. Investor activity: In some areas, investor activity in the real estate market has increased. Investors often purchase properties for rental purposes or to renovate and sell at a higher price. Investors buying up homes can further decrease the amount of houses available to regular buyers.
5. Demographic shifts: Changing demographics, including the aging population and millennials entering the housing market, have added to the demand for homes. The demand from these demographic groups and limited supply only intensify the low inventory situation.
The Impact of Low Inventory Real Estate
The effects and impact of low inventory real estate are widespread.
Most aspiring home buyers find it difficult to buy a house in this competitive market due to:
- Housing prices: The current situation has also led to higher home prices and greater competition between buyers. According to Redfin, the current median home sale price in the US is $418,379, up significantly from about $284,600 in May 2020.
- Bidding wars: With multiple buyers competing for a limited number of homes, bidding wars have become common, resulting in even higher offer prices.
- Fast speed of home sales: Homes are being sold quickly due to the low amount of inventory. As of March 2023, 60% of homes are being sold in under a month.
A knowledgeable real estate agent will help you make a competitive offer to increase your chances of winning in a low inventory situation.
Tackling a Low Housing Inventory Market: A Step-by-Step Guide
To navigate a low housing inventory market effectively, consider the following home buying strategies during low inventory real estate times.
1. Prepare your finances and get pre-approved
Before embarking on your home search, thoroughly prepare your finances.
One of the critical steps in this process is to get pre-approved for a mortgage. Doing so demonstrates your seriousness as a buyer. At the same time, it provides you with a clear understanding of your budget and purchasing power.
When getting pre-approved for a mortgage, your lender or mortgage broker will examine your financial situation, including:
- Income: Your income is a major factor in determining how much you can afford to borrow. Lenders want to make sure that your income is stable and predictable.
- Credit history: Mortgage providers look at your creditworthiness to assess your risk as a borrower. The higher your credit score, the less risky you are to lenders, and the more likely you are to get approved for a mortgage with a good interest rate.
- Debt-to-income ratio (DTI): Your DTI is a measure of how much of your monthly income goes towards debt payments. In short, mortgage lenders examine this to assess your ability to repay the mortgage. The lower your DTI, the more likely you are to get approved for a mortgage.
Once they consider these elements, the lender decides on the maximum amount they will lend you for your home purchase.
2. Get a pre-approval letter
Obtaining a pre-approval letter is highly advantageous for many reasons. For starters, it provides a clear idea of your affordable price range, saving time and preventing disappointment.
It also shows sellers you're serious, boosting their confidence in your ability to secure financing and giving you an edge in competitive markets.
Lastly, being pre-approved for a mortgage allows you to act swiftly when you find your dream home. In a fast-paced market, where desirable properties can receive multiple offers within a short period, being pre-approved positions you as a reliable buyer.
3. Work with an expert real estate agent and expand your search
Partner with an experienced real estate agent with extensive local market knowledge. They can provide valuable insights, help you find off-market listings, and negotiate on your behalf.
Be flexible with your location preferences and consider nearby neighborhoods or suburbs where inventory might be slightly better. Broadening your search criteria increases your chances of finding a suitable home.
4. Build a relationship with sellers
Building a relationship with sellers is another valuable strategy to consider in a low-inventory market. While the traditional methods of house hunting (like browsing listings and working with real estate agents) are your first stop, personal connections can often make a significant difference in securing the property you want.
One effective way to engage with sellers and stand out from other potential buyers? Writing a heartfelt letter expressing your sincere interest in their home.
Crafting a thoughtful and genuine letter can help establish a connection with the seller on a more personal level. Start by researching the property and the sellers themselves. This can provide valuable insights and enable you to tailor your letter accordingly.
In your letter, express your admiration for their home and highlight specific features or aspects that resonated with you. Consider sharing how you envision yourself and your family in the space to create an emotional connection.
5. Act fast and make a competitive offer
When you find a home that meets your criteria, be prepared to act swiftly. Considering the current market conditions, make a competitive offer that stands out from the competition.
This also highlights the importance of working with an experienced real estate agent who understands the market conditions and can guide you through the process.
6. Stay informed on housing trends
Continuously monitor the housing market trends, including new listings, price changes, and market dynamics. This information helps you make informed decisions and stay ahead of the competition.
Conclusion
So, we know that navigating a low housing inventory market requires proactive strategies and careful planning.
But we also know that despite the challenges posed by limited homes for sale inventory, it's still possible to find your dream home by preparing your finances using the home-buying strategies we've covered today.
By implementing these home-buying strategies, you can boost your chances of success in a low-inventory real estate market.
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