It has become increasingly challenging for prospective homebuyers to find available properties, particularly in major cities, as the housing industry grapples with a significant shortage of inventory.
According to a recent report from Realtor.com, the number of homes for sale in 2023 has decreased in 21 out of the 50 largest metropolitan areas compared to the previous year. Leading the pack is San Jose, California, experiencing a staggering decline of 35% in listed homes for sale. Sacramento, California, follows closely with a 27% drop, while Hartford, Connecticut, witnessed a 26% decrease.
Real estate agents in these cities attribute the declining inventory to a combination of factors, including elevated home prices, rising mortgage rates, and sellers' reluctance to list their homes in the current market climate.
In Sacramento, homes priced under $500,000 are in high demand and sell rapidly due to limited options available to buyers. Sellers, benefitting from historically low interest rates on their existing mortgages, are hesitant to list their homes for fear of incurring higher rates on a new property.
The recent surge in mortgage rates, reaching nearly 7% for a 30-year fixed-rate home loan, coupled with a median home listing price of $430,000 in April (up from $406,000 earlier in the year), further complicates the decision-making process for buyers and sellers alike.
While the competition for houses remains fierce in Sacramento, buyers are adopting a more cautious approach to bidding. Many are requesting sellers to assist with closing costs or to cover a portion of the interest rate to offset the rising costs. The bidding wars of the past have given way to more calculated offers, sometimes slightly above or below the asking price.
This trend of bidding wars has become the new normal in cities like Sacramento, where housing prices remain comparatively lower than neighboring Seattle and San Francisco. The shortage of available options has compelled house hunters to accept the reality of intense competition, with multiple buyers vying for the same property.
Similarly, in the Hartford area of Connecticut, a significant decrease in inventory has caused a market shift. Bidding wars have become commonplace, with multiple offers exceeding the listing price for every reasonably priced home.
Other major cities experiencing year-over-year declines in housing inventory include San Diego (26%), Milwaukee (23%), Cincinnati (23%), San Francisco (20%), Chicago (18%), Washington, D.C. (16%), Rochester, New York (13%), Seattle (11%), Providence, Rhode Island (11%), New York City (10%), Los Angeles (10%), Baltimore (8%), Philadelphia (6%), Detroit (5%), Boston (4%), Virginia Beach, Virginia (2.5%), Minneapolis (2%), Riverside, California (1%), and Cleveland (0.5%).
On the flip side, cities witnessing an increase in the number of homes for sale are primarily located in the South, including Austin, Texas; Birmingham, Alabama; Jacksonville,
Florida; Nashville, Tennessee; and San Antonio, Texas.
The shortage of housing inventory has become a significant concern in the national housing market, as homebuyers face the trifecta of higher mortgage rates, elevated asking prices, and limited options. While inventory has shown some growth compared to the previous year, the rate of increase has slowed over the past few months, according to Realtor.com. One contributing factor to the decline in new homes for sale is the shortage of skilled workers in the construction industry, as noted by the National Association of Home Builders.
Despite the challenges, the demand for housing remains strong. In April alone, over 4.2 million people purchased homes, according to the National Association of Realtors. The housing market continues to adapt as buyers and sellers navigate the changing dynamics, adjusting their strategies to cope with the scarcity of available homes.
As the housing industry grapples with the shortage of inventory, prospective buyers in major cities are finding it increasingly difficult to find suitable homes. The decline in listings has been most pronounced in cities like San Jose, Sacramento, and Hartford. Homebuyers and sellers are facing the realities of elevated prices, rising mortgage rates, and limited options. Bidding wars have become commonplace, with buyers competing fiercely for the few available properties. The market shift has prompted buyers to adopt more cautious bidding strategies, requesting concessions from sellers to offset the rising costs.
While some cities have experienced declines in inventory, others in the South, such as Austin, Birmingham, Jacksonville, Nashville, and San Antonio, have seen an increase in the number of homes available for sale. These cities offer some respite for buyers in search of more options and potentially less competitive markets.
As the housing market continues to evolve, it remains crucial for buyers, sellers, and industry professionals to closely monitor inventory levels, mortgage rates, and pricing trends. Adapting to the current market conditions and seeking guidance from experienced real estate agents can help navigate the challenges of buying or selling a home in a highly competitive environment.
The housing shortage serves as a reminder of the ongoing need for increased construction efforts and skilled labor to meet the demand for housing across the country. Balancing the supply and demand dynamics will be key to stabilizing the market and ensuring access to affordable housing options for future generations.