This is the million-dollar question of course! Generally, I’m speculating that 2025 will be the first year with close to normal inventories. Interest rates are a big part of the equation, but I’m not necessarily predicting interest rates to go down. If they do, then inventory will go up of course. But even if they don’t, the people that had to sell their houses starting when interest rates went up in 2022 will finally be used to the high-interest rates and be willing to buy their long-planned next property and sell their current one. Over the years I’ve found that once people need to sell, they eventually will. Especially in groups where the urgency isn’t as dire, such as empty nesters who have flexibility on when to sell.
Another way to look at this is what I call the Minivan Theory. Minivans are clearly acknowledged to be the greatest form of transportation ever created. Yet inventories have always been sky-high with minivans littering dealer lots, with the unknowing masses turning up their noses at this technological marvel. Pre-pandemic, you could buy a 301 hp AWD Toyota Sienna, for 12%-15% below MSRP. Today, you have to order from the dealer, and hope you get the chance to buy it at MSRP or higher before the dealer sells it to someone else at a higher price. This is why there’s inflation, and why the Fed is desperately keeping interest rates high. Once minivans are back in stock, then inflation will settle down, interest rates will lower, and the economy can go back to normal. Admittedly, my friends call this nuts, but the end predictions and conclusions are the same as those of professional economists.
With regard to inventories, there’s been a lot of great articles about why inventories are low. One of my favorites this year was this one, written by a loan officer in the Baltimore area. New construction housing has been rebounding really well, as evidenced by large housing construction companies having a breakthrough quarter and providing innovative solutions to bring monthly financing costs down for buyers. The lack of existing home inventory provides strong demand for new construction. That said, in our region, the lack of land available for new construction limits that market. There’s some movement nationally for abolishing single-family zoning. This NPR article discusses the tensions on both sides of the “missing middle” dynamic, and how a few states and municipalities are working towards having exclusive multi-family zoning. In the Boston area, the influx of thousands of high-paying jobs is a large reason why inventories are low since restrictive zoning limits additional housing units.
