The Expert Podcast

Interest rates are high, and home sale volume is crashing for sure. Even prices are starting to stabilize in some cases, soften a little bit. But the fact of the matter is there's still a shortage of inventory. Here's an article from a local market in Pennsylvania that says demand still outpaces supply. For quality homes—good resale homes that are in a nice neighborhood and in good condition—there's still not enough inventory.

Now, there may not be as many buyers in some places; in fact, there are places where nobody wants to buy anything. But there's still not a decent enough supply. There are more people that want to live in a house than there are houses to live in. There may not be as many people who can afford these houses or want to purchase right now, but they still want to live in a house. There are many more people that want to live in a single-family home than there are homes to go around. It's like a big game of musical chairs, but the price is at a point where not many people are pulling the trigger.

The problem is there's not a lot of people that want to sell either. A lot of potential sellers are looking at the market and saying, "Look, I saw what the prices were in 2021 and 2022, and I want to get somewhere near there. I don't need to sell it for half price, but I'm willing to maybe sell it for what it was in 2019 or the beginning of 2020. I don't need to get the cream of the crop, but I'm also not going to give it away." Right now, because of interest rates, sellers would have to discount their houses by 20 or 30 percent, and many are simply unwilling to do it.

Many people are holding their houses back from the market because they feel like they don't want to be rejected. People have a fear of rejection; if you offer your house for too much and nobody buys it, you're going to feel like people don't want you. So, a lot of supply isn't rolling out into the marketplace, and that's artificially keeping prices high, even with the current interest rates.

This is going to continue in the future because no houses are being built right now to backfill the demand for 2024 and 2025. That demand is going to fall into a vacuum of new inventory. So, when some of these sellers start to put houses out there, they'll be snapped up.

Another problem is that a lot of houses are defective—they need work or repairs and are in bad condition. This presents an opportunity for builders and contractors, not necessarily to build new houses (which might not yield a good return), but to rehab older houses that have been neglected for three or four years. These can be made into like-new homes to serve the market at a much lower price.