Understanding Low Inventory: Its Impact and Strategies for Buyers and Sellers

Low inventory in the real estate market is a term that has been talked about a lot during the past couple of years, as demand for homes and condos increases, available properties dwindle, leading to low inventory levels.

This article aims to comprehensively understand what low inventory means in the real estate context, its implications on the market, and strategies for buyers and sellers to navigate this challenging situation.

What Does Low Inventory Mean?

Low inventory, in real estate, refers to a condition where the number of homes available for sale is significantly lower than the number of potential buyers in the market. It is often measured by the “months of supply” metric, which represents the number of months it would take to sell the existing inventory at the current sales pace.

A balanced real estate market typically has around six months of supply, while a lower number indicates a seller’s market and a higher number indicates a buyer’s market. Currently, the Big Island has a very low inventory with a low number of homes and condos for sale.

Implications of Low Inventory

~Increased Competition:
In the current real estate market, where fewer properties are available, potential buyers often compete to secure a home, resulting in multiple offers. While this heightened competition is not reaching the same frenzy levels as 2021 and 2022, it remains challenging to be a buyer. Multiple offer situations are still possible, making the buying process demanding and competitive.

~Rising Property Prices:
Low inventory and high demand exert upward pressure on property prices. Sellers can often command higher prices due to the limited supply of homes, making it a favorable market for the sellers. 2021 and 2022 had the most significant increase in property values, and currently, our Big Island property values are holding firm (depending on the area).

~Faster Sales Process:
Homes tend to sell quickly in a low inventory market. Buyers must act swiftly and decisively to make offers and close deals promptly.

~Limited Choices for Buyers:
Low inventory means fewer choices for buyers, making it challenging to find properties that match their criteria. This limitation can lead to compromises or prolonged searches. Remember, it’s ok to wait for the right property.

Strategies for Buyers in Low Inventory Markets

~Get Pre-Approved for a Mortgage:
Having a pre-approved mortgage shows sellers that you are a serious buyer ready to make a quick offer, which can give you a competitive edge. A pre-approval letter shows the seller you provided your tax returns to the lender.

~Know What Your Criteria Are:
In a low inventory market, you may be flexible with your requirements and consider not being flexible with some requirements. Know what you want and stick to those needs. If a condo with a garage is a must, stay with that criteria and be patient.

~Work With a Knowledgeable Real Estate Agent:
An experienced agent with in-depth knowledge of the local market can help you identify off-market or preview properties, negotiate effectively in multiple offers, and stay informed about new listings. During this challenging buying time, it is essential to have a good communicator agent!

~Act Quickly and Be Decisive:
Don’t hesitate to make an offer when you find a property that meets your needs. Delaying may result in losing the opportunity to another buyer. But don’t forget about the backup offer!

Strategies for Sellers in Low Inventory Markets

~Set a Competitive Price:
Pricing your home competitively can attract multiple offers and create a sense of urgency among buyers, potentially leading to a higher final sale price.

~Stage Your Home:
Presenting your home in the best possible light can make it stand out among the limited inventory. Consider professional staging or an agent that offers free staging to enhance its appeal. (I offer staging in all my listings)

~Be Prepared to Move Quickly:
Once you receive an acceptable offer, be prepared to proceed with the sale to capitalize on the market’s favorable conditions.

Low inventory in the real estate market means buyers and sellers must be well-prepared and adaptable. Buyers must act quickly and be flexible with their preferences, while sellers should take advantage of the high demand to set competitive prices and make efficient sales. Both parties can successfully navigate this challenging market by understanding the implications of low inventory and employing appropriate strategies.