Weekly Brief – April 19, 2021

The mainstream press is catching on to the inventory issue in the residential real estate market in a big way. In some respects, this has become a self-fulfilling prophecy.

At the beginning of the pandemic, the lack of inventory was attributed to sellers’ reluctance to list homes because they (depending on the source) were concerned about potential buyers entering their homes, or they were concerned they would not receive satisfactory offers, due to the economic conditions.

Since we have reached a “new normal” during the pandemic, the explanations for the lack of inventory shifted. Now, sellers are worried that they will not be able to identify and afford a replacement home. Sellers themselves are concerned about the limited inventory. Put more simply, we now have limited inventory because we have limited inventory.

So, how do we get out of this feedback loop? Well, the latest stories seem to indicate that new construction may not be our savior. Prices of construction are increasing dramatically because of supply chain issues (see, pandemic, among other causes). Lumber prices, in particular, are increasing quickly.

It seems the way out of this constrained inventory may require some creative work by real estate agents (and/or lawyers). Negotiating post-closing possession may give sellers the comfort they need that they will have the time to locate and purchase a replacement property. Given that this is a strongly seller-favorable market, it would appear sellers have the leverage to negotiate possession if that is what it takes to make a seller comfortable to enter into a purchase agreement.

The other option is that eventually, the market may just revert to equilibrium, as markets often do. Hopefully, this summer selling season will answer many questions about where the market is headed.