What does low inventory mean and why are we experiencing it?

Good afternoon, I’m Jeb Smith, Real Estate Broker with ReMax Terrasol here in Huntington Beach. Today is the 1 st video in a series where I address common questions that I receive from Buyers and Sellers alike. Today’s question is “What does low inventory mean” and “why are we experiencing it”?

If you have been in the real estate market as a buyer or seller for the last 4 years or so you have likely heard someone say something along the lines of “Inventory is so low”. Let’s start by addressing what they mean by saying Inventory. Inventory is the supply of active homes on the market that are available for sell at any given time. Now that we have talked about what inventory is, let’s talk a minute about what low inventory means. Low inventory means that we have strong buyer demand, people looking to buy homes and because there are more buyers than there are sellers, this causes an imbalance creating a shortage of available homes for sale.

So what causes this shortage of inventory? A lot of the professionals out there think that the shortage of available homes has to due with the restrictions placed on new home builders after the economic collapse of 2007. Because new home builders aren’t building more homes to keep up with the amount of buyers coming into the market coupled with resales of existing homeowners, this started a shortage of available homes. In a normal balanced market we keep about a 6-7 month supply of homes available for sale, over the last 4 years or so we have been around a 2 month supply of homes which is not enough to keep up with buyer demand.

Usually during the start of the spring market we start to see our inventory increase but this year is a little different as we are seeing just as many homes go into escrow as are coming on the market which is causing our available inventory to stagnate leaving Buyers wondering if they will ever find the perfect home. The biggest problem we are facing with regards to available homes is that those Sellers who are wanting to sell are looking at the available homes to purchase and are hesitant to pull the trigger worrying about not having a place to go if their home goes into escrow. This again creates a catch 22 because if Sellers aren’t willing to put their homes on the market then inventory will likely continue to stay low until something happens either with rising rates or a major economic issue, neither which I expect to take place anytime soon.

As always, I appreciate you taking the time to watch. If you have a question that you would like me to address, please email me directly by going to my website www.jebsmith.net. Thanks again for your time and I look forward to answering your questions in the future.