The economy of real estate is both simple and complex. Like with any other commodity, supply and demand determine cost within the housing market, and right now, home costs are at a record high—an increase of 18% since September 2020. But the factors creating record-low inventory and a surge in buying interest are varied and complicated.
To illustrate just how skewed the market is, we can look at the months of supply metric. This measure tells us how many months it would take for all homes on the market to sell at the current rate. In a balanced real estate market, that number is six. Since 2019, the average months of supply have dipped from about four to fewer than two. The number of single-family homes for sale in the U.S. at the beginning of 2021 was just 870,000, the lowest in roughly 40 years, according to a 2021 study by Harvard University.
Investment firms have found themselves on the favorable side of the pandemic housing crisis, accounting for owning one of out every six homes, and 25% of all apartments purchased in quarter two of 2021. Investors have been able to take advantage of the low-interest rates and the demand for rentals, particularly among those who are priced out of the market.
While the pandemic has played a significant role in driving demand for housing, it is only partially to blame for the supply shortage. That problem—which is actually an underproduction problem—began two decades before the world had ever heard of…
