Let’s see what negative inventory means for you in housing. As a Realtor, this is something I track; it’s also something you need to understand.
What Is Negative Inventory
Negative inventory occurs when more homes leave than come on the market for sale. The result is that you’re literally running out of homes for sale.
Let’s just take the previous 24 hours. From Tuesday to Wednesday, here’s what we have for single family homes in the New Jersey MLS:
- 168 new listings
- 127 homes accepted offers
- 63 homes went Under Contract
The math is obvious. We had 22 more homes leaving than entering the market for sale. It’s been like this for quite some time. While 22 units doesn’t seem like much, the cumulative effect has been significant.
What Negative Inventory Means For You
For home buyers –
- Not much to show you
- It will take more time looking
- You’ll often be in a multiple bid situation when you find a house
- You might have to make several offers before you get a home
For homeowners –
- Plenty of buyers
- Often multiple offers
- Leverage in negotiating terms
- Less time on the market to get your home sold
I forecast a negative inventory market years ago. It’s here to stay for quite a while too. How did this happen?
The Boomer Effect
- Baby Boomers may be aging, but they are aging in place more than any generation before them.
- A great number are physically active, have a paid off mortgage and are still working
- It often costs more to rent a 2 bedroom apartment than to own their home
- Emotionally they don’t want to leave friends and family
- Most, in my experience, leave when the stairs or taxes are too much.
Low Mortgage Rates
If you have good credentials, 30 year mortgages have been at 3.5% for months. This week it dropped to 3.375% That’s $442 per month; at 4% it’s 477 so let’s go to the middle at $460 for $100,000 in mortgage dollars.
The NJMLS has the average 2 bedroom rental at $2,143. Let’s make that $2,000. Now divide that by $460 for $435,000 in mortgage dollars. With a 10% down payment and the ability to spend $1,500 more monthly (taxes, insurance, maintenance) you can buy a home for $485,000.
Low rates have buyers jumping off the fence, out of their rentals and into home ownership because it makes sense.
The Risk for Buyers & Sellers
- Accepted offers fall apart because buyers get caught up in a bidding war only to regret it
- Sellers can be too demanding – buyers answer back with unreasonable inspection issues
- Rushing, poorly prepared buyers are not properly educated on costs
- Sellers knowing the inventory is low, over price their homes
The Good News
- The market is fundamentally solid; it will remain solid for years
- Buyers are not over-paying making appreciation reasonable
- Rates are low and will be so for the foreseeable future
- The cost of owning a home is less than it was 3 years ago
- Our negative inventory is challenging and not a crisis.
What negative inventory means for you depends on who you are. It’s different for buyers and sellers but there is a message here: Don’t over play your hand (sellers) and be completely educated and prepared (buyers).
Text or call me if you need a great agent at 201-741-8490 If you’re out of the Bergen County area, I know top agents across the country too.
