Housing inventory increases in January. Here’s why you’re still having trouble purchasing:

If you’ve been in the housing market, you’ve probably felt extremely frustrated at this point. Who can blame you?

Buyers today face the double whammy of rising home prices and high lending rates from mortgage lenders. As the Federal Reserve prepares to cut interest rates, it may become a little more affordable to sign up for a mortgage in late 2024, but the problem of rising home prices still remains.

But the biggest reason home prices are rising so much is because there isn’t a lot of inventory to choose from, giving sellers the upper hand. In fact, despite the increase in real estate inventory in January, there is still a significant shortage of available homes overall.

Inventory still sluggish

The inventory of unsold existing homes in January 2024 was 2% higher than the month before, according to the National Association of Realtors. However, the problem is that despite this increase, the market expects there to be only 1.01 million homes for sale, or a three-month supply.

You often need to supply homes for six months to have enough inventory to meet buyer demand. So, despite the uptick, there is still a shortage of inventory in the market.

And the biggest reason is mortgage interest rates. Because it’s still an expensive time to get a mortgage, many existing homeowners aren’t budging. Rather, they are staying in the status quo to hold on to the lower mortgage rates they currently have. Therefore, housing inventory will likely remain stagnant until mortgage rates drop significantly.

How to Navigate the Real Estate Market with Limited Inventory

Limited real estate inventory is a clear challenge for today’s buyers as it drives up home prices. But one thing you should consider when looking for a home is adjusting your expectations and purchasing your first home.

Starter homes tend to be less spacious and updated. But it’s a great way to get into homeownership and become familiar with what’s involved in owning your own home.

If you’re buying a starter home with the intention of only staying there for five or six years, it gives you the opportunity to build up equity in the home to make it easier to increase your limit when borrowing against it becomes cheaper. And the inventory opens. If you’re looking to purchase a larger, updated home in today’s market, it can feel financially straining.

If you are a buyer who has flexibility in deciding when to move (for example, if you have a month-to-month lease and your landlord is in no hurry to let you go), there is another way you can try to negotiate with the seller. For example, if you can be flexible with your closing date to suit the buyer’s needs, you can force them to lower their asking price.

As mortgage rates begin to fall, housing inventory should begin to increase. But we’re not there yet. It’s not even close. So your best bet for now is to view your starter home as an opportunity to get your feet wet and secure a more desirable property later.

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