Why Low Inventory Levels are Straining Homebuyers

With homebuying season quickly approaching and inventory levels not showing any improvement, potential buyers could be faced with more competition and bidding wars for homes they have set their sights on.

Zillow's Real Estate Market Report for January found that homebuyers had 8.6 percent fewer homes to choose from than they did last year. In addition, housing starts reached a three-month low in January, which indicates that builders are not building new homes.

According to Zillow, "A restricted supply of homes for sale will mean increased competition for homes that are available, and bidding wars that can price out entry-level or first-time buyers. Low inventory, along with a strong job market has been driving up home prices, especially on the West Coast."

Source: Zillow

Zillow also reviewed which markets are better for buyers or sellers in terms of price cuts and days on market. The majority of sellers' markets are in the West. Here, buyers will likely face bidding wars. On the other hand, buyers have more bargaining power in the East.

"If you're looking for a home or trying to sell, it's important to know what kind of market you're in," said Dr. Svenja Gudell, Chief Economist at Zillow. "Hopeful buyers in a strong sellers' market should be prepared to move quickly, since homes don't stay on the market as long. In a buyers' market, they can afford to take their time and be more selective. However, low inventory is a factor affecting the majority of the country, so buyers should be prepared for a limited selection as we enter the home buying season."

Zillow reported that home values increased 4.2 percent to $184,000 and the pace of home value appreciation has increased for ten consecutive months. Meanwhile, rents are still leveling off, rising only 2.9 percent from last January.

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