Market Shrinkage Part 1

Some of the reportage on the market characterizes the inventory shrinkage as a loss of new listings, rather than the voracious buyer appetite in this historic real estate market.

In one report, the journalist indicated that they discovered there were half as many homes for sale in February 2021 as there were in February 2020. I’m not sure why this is being reported this way, but this historic collapse of available inventory is nothing new since the beginning of 2020, even reaching back into 2019. Historically, the National Association of Realtors characterizes a healthy housing market as one which has a six-month supply of homes for sale. New Jersey has not had a six-month supply statewide for over a year, and in many counties over 2 years.

What occurred in 2020 with respect to the real estate market was a classic example of the domino effect: there was an initial pullback of buyers due to the outbreak of the virus in early 2020. But by May, the effect of that virus produced a different segment of buyers in addition to those buyers who were predisposed to be buying in the spring of 2020. There was already a tranche of first-time buyers prepared to enter the market. Up until the spring of 2020, first-time buyers were not aggressively entering the market. But when interest rates took a severe downturn in terms of rates, buyers from all sectors entered into the market seeing an opportunity to not only purchase properties with reduced interest rates but also to migrate away from densely populated regions such as New York, California and even areas in New England and Pennsylvania.

No Pullback, Inventory Shortage, Increased Costs for Building Materials
With the buying spree that occurred starting in May 2020 through the end of the year, much of the available inventory has been sold, going from a 5-month supply to less than 2-months supply in under two years.