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Low Inventory = High Competition

by Robert Bialkin

In case you haven’t noticed the housing market has rebounded since the crash of 2008. Property values are steadily climbing, and people are working again so they are eager buy. The weather is heating up, so why not the housing market? The simple answer is that there are just not enough houses for sale. Lack of supply creates a high demand, and high competition creates a seller’s market. But if it’s such a seller’s market, why aren’t more people selling?

One theory is that with so much hype about low inventory, many would-be-sellers are simply waiting to see what happens next. Mortgage rates continue to by very low, equity is building, and folks are wary to move without some external motivation. Plus, most would then have to turn around and become buyers themselves in a seller’s market. Essentially the dog would be chasing its own tail.

Following 2008, many homeowners had external motivation thrust upon them in the form of foreclosure or short sale. Well now those folks have done their time in credit jail, and are again eligible to buy. Unfortunately, they face a harsh reality of high prices and low inventory.

One reason for this lack of housing stems directly from the crash of 2008, when investors and billion-dollar hedge funds scooped up huge swaths of housing at rock-bottom auction prices and turned them into rentals. These rentals will likely never go up for sale again. And with no houses to buy, competition for rentals has become fierce. I have heard property managers describe receiving over 100 applications for a single rental. Sounds more like a landlord’s market than a seller’s market.

Crafting a rental application or making a strategic offer on a house these days looks a lot like trying to get into college. First, one must you have rock-solid financials and have received excellent grades from previous landlords. Second, the rental application should include an essay-like cover letter describing extracurricular activities and explaining why getting into the place would mean so much for the family. Some even include a family photo with their dog. Then, if you are lucky enough to be accepted, most landlords only offer a 1-year lease, which usually means expect a tuition hike next semester.