After recently returning home from a real estate conference with top producing Realtors and teams from all over the United States the one constant for all of us, regardless of location was the ever persistent lack of inventory. This significant shortage of homes for us to sell and for our consumers to buy has up ended the market in a way that I believe very few expected. As a full time and top producing Realtor in LA for 20 years I certainly expected the market to pull back this year but not in the way that unfolded. Further, the effects can be felt in every corner of the country with almost no market spared.
The underlying cause appears to be the rise in interest rates. I know what you’re thinking…isn’t that backwards?? This has typically had an inverse effect on home values with rates rising, affordability falling and inventory levels swelling. This was one of the primary outcomes that was sought in the Fed’s “battle against inflation”. However, that is not what has transpired. Instead rates have steadily risen to an average national value on a 30 year fixed mortgage (at the time of this article) of 7.51%. That is an increase from a national low of 2.68% in January of 2021. Current homeowners who locked in historically low rates now find themselves hanging onto those mortgages and often times involuntarily stuck in their current housing situation because they cannot afford the higher payments. Therefore the move up buyer/seller has all but vanished and this has put tremendous pressure on the current housing stock. Here in greater Los Angeles for instance there is still less than 3 months of inventory available.
When inventory levels start to rise we might start to finally see a significant shift in the housing market, and not likely until that happens. While we are off the highs from the pandemic in 2020-2022 the market has more or less continued to chug along across the United States. Rising mortgage rates might only continue to tighten the grip on available inventory and therefore continue to buoy and even propel the market. Because at the end of the day the most basic, fundamental principle of economics will determine the outcome. That basic principle is supply and demand…without the supply increasing in a meaningful way the demand can plummet and values will hold or possibly even continue to rise. It’s a strange dichotomy and something I did not expect to see in my 20 years of experience. Where we go from here remains to be seen, but in the meantime I am navigating buyers and sellers through these turbulent times with care and constant examination of the local real estate landscape.