How the Inventory Crunch is Hurting Existing-Home Sales
Existing-home sales rose throughout much of 2020 as the COVID-19 pandemic accelerated long-pending trends toward an American preference for single-family homeownership. During December 2020, the National Association of Realtors (NAR) reported existing-home sales had fallen “more than expected” that month after posting a 15-year high in November of the same year. Although the NAR had predicted a drop of about 1 percent thanks to declining supply, the number was closer to 2.5 percent. The following month, NAR chief economist Lawrence Yun warned that the unsold inventory in the U.S. had fallen below two months and that demand for existing homes would almost certainly continue to exceed supply.
“The momentum is likely to carry into the New Year, with more buyers expected to enter the market…. Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway,” Yun said at the time. As we entered the second quarter of 2021, sales on existing homes have plummeted. They fell 6.6 percent month-over-month in February (more than double the negative forecasts from January), and inventory is down more than 29.5 percent year-over-year. Of course, median home prices are rising, up 15.8 percent year-over-year.
“The market is still out-performing pre-pandemic levels,” said Yun, but he added the only way to start selling more inventory is to get more inventory out there. This is common problem in one of PIP Group’s primary markets, Savannah, Georgia, but we have been able to navigate the intense competition for homes by adjusting how we evaluate potential properties, leveraging our decades of relationships and lead-generation efforts in the city, and identifying the most important aspects of a renovated home for renters and retail buyers. The result has been that we have been able to buy inventory we might have considered not viable prior to the COVID-19 pandemic and continue to fix-and-flip and rehab-to-rent at a pace that enables us to keep our investors happy while we contribute to the overall inventory in the market.
While the NAR may describe this situation as one that “hurts” the existing-home market, PIP Group has to argue that the situation is extremely positive for investors in a position to acquire existing homes and use the right strategies for those acquisitions. For example, with properties selling in Savannah, specifically, for about 40 percent more than they were a year ago, PIP Group’s ability to renovate at all is due to our long-term relationship with our contractors. While new investors in the area struggle to obtain permits and get on the inspection schedule six months from now, we are able to leverage our long history of activity in the community to get through inspections and permitting so we can break ground. The key in this, as with any market in any condition, lies in looking carefully at what your options might be for any given scenario and then finding a solid, proven liaison within the market that can help you accomplish your goals.
