Why is housing inventory so low?

by Chris Trapani on Apr 2

 

Parsing the reasons why fewer houses are on the market

 

There has been a great deal of discussion regarding the consistently low housing inventory levels throughout the nation. Very little, however, has been written about the reasons why inventory levels are so low, especially following the economic disruption of 2008-2011.

Understanding the why can be helpful in predicting how these factors might influence longer-term supply levels and future appreciation potential. This knowledge might also shed light on why inventory might remain constrained over the long run.

In the second half of 2011 we began to see an acceleration in the decline of inventory levels nationally, and since that time the available housing inventory has continued to remain historically low. The graph (figure 1) below highlights the continuous low-inventory environment.

Why is this so? There are numerous conditions that have contributed to this phenomenon and bundled together have created an inventory control dynamic that, as prices rise, only serves to limit the number of homes available for sale.

 

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