Housing Inventory Shortages in the U.S.

The dwindling supply of homes for sale has been a proximate cause of the recent explosion in U.S. home values, which have risen by 32% in the past two years.

Zillow reported that U.S. inventory sank to 729,000 home listings in February. That’s down 25% from February 2021, and a decrease of 48% since February 2020. It also marks the fifth consecutive month of declining inventory.

According to Fortune Magazine: “Why is the inventory situation getting worse? It starts with demand, which isn’t letting up. We’re still amid the five-year window (between 2019 and 2023) when every millennial born in the generation’s five largest birth years (between 1989 and 1993) will hit the all-important first-time homebuying age of 30. Homebuilders, who cut back on building after the 2008 financial crisis, simply weren’t ready for this demographic wave that was looming even before the pandemic struck. To make matters worse, homebuilders are now struggling to even fulfill contracts on time as the overwhelmed global supply chain continues to create delays and shortages for everything from garage doors and windows to framing lumber.

“There’s another reason inventory is shrinking again: Spiking mortgage rates. Back in December, the average 30-year fixed mortgage rate was at 3.11%. As of Friday, that rate has spiked to 3.85%. In theory, higher rates should cool the market over time. However, this sudden move up in mortgage rates, Bachman says, has corresponded in a short-term uptick in “buyer urgency.” Home shoppers, she says, are rushing to buy now before rates go even higher. Of course, that’s only taking more inventory off the market.”

We expect job growth to remain high in Tennessee which will continue to put upward pressure on home prices.  As people relocating to Nashville are priced out of the home market, the Nashville Multifamily apartment leasing should continue to see strong absorption.  The “release valve” for this demand pressure will come partly in continued strong home-starts, more single family rental communities (currently also being built), and lastly in the form of developers building more than 17,000+ multifamily apartment units that are coming to the market in the next 12-18 months.  So in summary, limited home inventory is likely to drive up apartment absorption rates as people look for adequate substitutes for single family homes.