Finding an affordable home is getting more difficult as supply and demand in the housing market grows further out of balance.
Active home listings fell to an all-time low of around 538,000 at the end of November, down 26% from the roughly 725,000 active at this time last year, according to data from Redfin, a national real estate brokerage.
In accordance with basic supply and demand principles, the severe lack of inventory drove up sales prices. The average sales price in November climbed to a record $360,375. That’s up from $316,000 at this time last year and $359,637 in July 2021, when home prices were presumed to have peaked for the year.
What’s causing the housing supply shortage?
Record low home listings is the result of a combination of factors. They include:
- A decade or more of underbuilding following the 2008 housing market crash left the home supply short coming into the pandemic.
- Low mortgage rates, remote work opportunities, and desire for more space have been driving homebuying demand throughout the pandemic, in addition to a wave of millennials aging in their prime homebuyer years.
- Due to mangled supply chains, homebuilders are facing shortages in lots, labor, and materials. This has made new homes slower and more expensive to build.
- Active listings are following a seasonal pattern by decreasing during the winter. There was an average of 700,000 weekly listings throughout August and September, but that figure dropped to 590,000 in November.
- Demand is not cooling as it usually does in fall and winter. Forty-five percent of listings in November accepted an offer within two weeks and 33% accepted an offer in one week.
Together, these conditions create the perfect storm of home supply shortage, and inventory may fall further yet.
Redfin Chief Economist Daryl Fairweather said active listings typically decline 15% in December. If that comes to fruition, there would be 100,000 fewer homes for sale at the end of 2021 than when supply previously bottomed out in February.
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That puts sellers squarely in the driver seat heading into 2022. Redfin data shows that 43% of homes sold above list price in November and the average home sold for 0.5% above asking.
The omicron variant of the coronavirus also threatens to hamper housing supply and increase homebuyer competition, although it’s not clear how much of an impact it will have. Previous COVID waves have been met with low mortgage rates, high demand, and fewer sellers willing to list their homes.
That leaves homebuyers in the precarious position of deciding whether to brave the current market or roll the dice on future conditions. But even in an extremely seller-friendly market, homeownership can be used as a hedge against inflation and a primary means of wealth creation.