It’s no secret that the housing market has changed drastically over the past few years. Right now, we’re witnessing a housing shortage in 2023. However, it’s nothing new. Fewer available homes and increasing prices have become serious problems for buyers and renters all over the U.S. That said, it’s important to understand what causes a housing shortage and how investors can navigate the market. In today’s video below, we’ll cover some important factors to keep in mind while evaluating the current housing market.
Contents of This Article:
- Is There a Housing Shortage in 2023?
- What Causes a Housing Shortage?
- How a Housing Shortage Impacts Investors
- Navigating the 2023 Rental Market
- Protect Your Rentals With Property Management
Is There a Housing Shortage in 2023?
If you’ve looked to buy a new home recently, you may have noticed it’s a little difficult. Not only are prices high, but there aren’t enough homes on the market. According to an estimate from 2021, the U.S. was over 3 million homes short of the demand of potential home buyers.
However, unfortunately, the housing supply has been an issue for several years now, dating back to the Great Recession in 2007 and 2008. New home builds at the time declined sharply and have slowly increased since, never reaching the same level as before the Great Recession.
According to the National Association of Realtors, we saw a small gain of 0.2% in existing home sales in May 2023. Additionally, unsold existing homes grew 3.8% from the previous month to 1.08 million at the end of May. However, sales are still down 20.4% from one year ago today.
Next, we’ll go over what causes a housing shortage and how it impacts investors looking to grow their rental portfolios.
What Causes a Housing Shortage?
Several things have changed over the past few years, impacting the housing market and leading to a major housing shortage. For instance, a decline in new construction and an increasing population play a large role. The Covid-19 pandemic caused supply chain issues, labor shortages, and rising material costs. The rising cost of construction materials, including lumber, steel, and concrete, is a major factor. However, while this plays a large role, this isn’t the only problem.
More institutional real estate investors entering the market also contribute to the housing shortage in 2023. According to a 2022 report by the National Association of Realtors, institutional home buyers made up 13% of all residential home sales in 2021. Institutional investors are typically large companies that invest large amounts of money in real estate, taking homes off the market from potential buyers.
Another factor that contributes to a shortage of homes is regulatory barriers. Many states and local areas have strict zoning regulations or regulatory hurdles that can slow down new housing development. For instance, some areas have minimum lot sizes and building requirements that may increase the cost of land, limiting the number of units that can be built.
When Will Housing Inventory Increase?
It’s hard to say when the housing inventory will return to a normal level. However, the only way out of the housing supply crisis is to create more housing. Luckily, new single-family homes are slowly helping the issue.
According to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, new home sales increased 12% between April and May. As a result, 763,000 new single-family homes were sold in May, the most sold since February 2022. However, there’s still a lot of work to go before the housing supply issue is solved.
How a Housing Shortage Impacts Investors
The housing shortage in 2023 has several impacts on real estate investors, both good and bad. After all, with fewer homes on the market, more people may turn to renting instead. However, fewer homes on the market typically mean higher prices, more competition, and fewer investment opportunities. That said, here are some of the main ways a housing shortage may impact investors.
- Increased Property Values- Housing shortages often lead to increased demand for limited housing risk. As a result, property values tend to rise, which can benefit investors who already own properties. They may experience an appreciation in property prices, potentially leading to higher returns on investment if they decide to sell or rent out properties.
- Rental Income Potential- In a housing shortage, rental demand tends to be high as individuals struggle to find suitable housing options. This can create an opportunity for investors who own rentals or want to purchase them. With limited supply and high demand, investors may be able to charge higher rates, potentially increasing income.
- Decreased Vacancy Rates- A housing shortage often leads to lower vacancy rates, as there are fewer available properties for rent. This can benefit investors by reducing the risk of prolonged vacancies and ensuring a steady rental income stream. Lower vacancy rates can make it easier for investors to find tenants quickly, minimizing potential income loss.
- Limited Investment Opportunities- While there may be a few positives for investors, a housing shortage can make it challenging to find suitable investment opportunities. With limited supply, finding properties that meet investment criteria or offer attractive returns may be difficult. This can lead to increased competition among investors, potentially driving up property prices and making it harder to find profitable deals.
- Regulatory Changes- Housing shortages can sometimes lead to regulatory changes. For instance, governments may implement regulatory changes or introduce policies to address the issue. These changes may impact investors by altering zoning regulations, rent control measures, or tax policies. As such, investors must stay updated on regulatory shifts as they may affect the profitability and feasibility of their investments.
Navigating the 2023 Rental Market
If you’re looking to invest this year, here are some tips to remember while navigating a shortage of homes on the market.
- Research Your Local Market- While the national housing market can be a main indicator of economic health, it’s still important to do research and examine the specific market you’re looking to invest in. For instance, you’ll want to evaluate home price changes, rental rates, and the rental demand for that area.
- Plan Your Finances- If you plan on buying a property this year, it’s crucial to plan your finances first. For instance, set a budget for the investment, a down payment, emergency costs, and miscellaneous fees. To make it easier, you can use a mortgage calculator to determine whether you can afford the monthly payments before you invest.
- Improve Your Knowledge- It’s essential to improve your understanding and stay knowledgeable about how the real estate market works. After all, the market is always changing, so if you plan on investing this year, you’ll want to keep up with what’s happening. That way, you can develop a strategy to benefit your investment type.
- Buy When You Can- There isn’t necessarily a perfect time to invest in real estate. Instead, you’ll want to consider your financial situation and goals when determining when to buy.
Protect Your Rentals With Property Management
If you’re trying to navigate the housing shortage in 2023, it’s important to stay up-to-date with local market trends. While investing in real estate this year may be difficult, it’s not impossible. However, making informed investment decisions takes a certain level of understanding and continuous market research.
Need More Advice? contact us today!
Aside from finding profitable investment opportunities, keeping your properties up-to-date and well taken care of is crucial. Luckily, a reputable property management company, like Bay Property Management Group, can care for your rentals while you seek new opportunities. So, whether you want to invest in more properties or focus on excellent management and tenant relations, BMG can help. Contact us today to learn more about our comprehensive rental management services in Baltimore, Philadelphia, Northern Virginia, and Washington, DC.
