Inman’s Inventory Insanity series is complete. Catch up on part 1, Why are there no homes for sale in America?, part 2, Notes from exhausted agents on the front lines of the inventory shortage, part 3, The secret economic forces fueling the housing shortage, part 4, What it’s like being a homebuyer when there are no homes to buy, and part 5, When will this supply shortage end? Here now to explain what it all means is Brad Inman. 

Think of the housing market like a pizza party.

Twenty people were invited but you only have one 12-inch pizza. What do you do?

Bake more pizzas. Alas, build more housing.

But what about the uninvited guests, what are they doing here and why are they sometimes getting first dibs on this little 12-inch pie?

Right now, the housing market has a slew of uninvited guests in one of the worst housing shortages in the history of America.

One reason is that traditional homebuyers are in some cases being pushed aside as new types of corporate buyers enter the market. Everyone wants a slice of the U.S. real estate market.

The list is long.

Zillow Offers is buying homes. Offerpad, Opendoor and a slew of other iBuyers are acquiring homes. Companies with new business models like Pacaso are buying houses on behalf of vacation homebuyers.

All of these companies have billions to invest. If they have not moved the needle on supply yet, they will soon, because their reach and buying power is staggering. Plus, because the market is competitive, they will likely pay more at some point, crowding out consumers.

While many of these companies do not necessarily hold the homes that they purchase, they disrupt the traditional market and compete with consumer buyers.

Another group are LLCs, private investors, hedge funds and private equity firms, all of whom are buying homes in various ways, and in big volume. 

Invitation Homes, American Homes 4 Rent, Progress Residential, Main Street Renewal and Tricon American Homes alone own more than 200,000 single-family houses.

Eleven percent of home purchasers in 2018 were investors, largely private-equity firms, according to an excellent account in The Atlantic. That’s one in 10 home sales, and that was three years ago, when this trend was just getting started.

For these entities, houses aren’t homes but rather an “asset class.” Yikes. That’s like calling apple pie an asset class. 

Yet another factor contributing to the inventory shortage are homes sold off market. 

As Realtor Linda O’Koniewski put it on Inman’s Facebook group, “Dark listings, pocket listings are an emerging underground housing economy.” In other words, someone is hiding a pizza in the back room.

This shrinks the available supply for the average homebuyer and shakes up a fair and balanced marketplace.

Indeed, the housing inflation bubble exacerbates the problem for everyone. Corners are cut, sellers and buyers are made false promises and the market suffers from severe imbalance.

Realtors are the moral rudder in this leaky boat. But they too are frustrated by the lack of supply and are scrambling to find listings. Their livelihood depends on it.

Regrettably, some bad apples in this bunch are pulling slimy stunts to get listings. That only makes things worse and points to this all being some sort of bubble. Shenanigans tend to go hand-in-hand when assets are insanely inflated — environments ripe for white-collar crime.

So what lies ahead?

Broker owner Bill Lublin says, “We’re going to need to build our way out of this.”

I wish it was that simple. The same homeowners who will not sell their homes are opposed to more housing development. They drive up the value of their homes and become a powerful local force behind the lack of supply.

Hope may come from other corners.

Realtor J. Philip Faranda notes, “When the moratorium on foreclosures ends, the market will have far more distressed and motivated inventory. It won’t all be bank owned, but it will be the segment that took it on the chin economically due to the pandemic.”

Sad that the solution may come from the misery of others.

Markets do have a way of working themselves out. But in the meantime, an ugly situation isn’t getting any better. If you are a homebuyer, the line for pizza is long.

Read the full Inventory Insanity series here:

Email Brad Inman

homebuying | Offerpad | Zillow
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