U.S. housing inventory is trending in the right direction. 

We saw a 12.9% year-over-year increase in new property listings in February. Although total inventory remains flat, we’re finally not seeing a decline in overall inventory for the first time in nine months.

As you’re likely aware, tight inventory is mainly responsible for the stubbornness of the housing market. Even when active demand seemingly froze market activity, prices haven’t budged. Inventory kept rising interest rates from easing home prices. It’s also made the supply and demand balance unsustainable.

Ideally, this increase in new home listings points to a turning point on the horizon. But there are a few problems – and reasons investors shouldn’t sit back and “wait out” low inventory.

3 Reasons Not to Wait for More Inventory to Invest

Reason #1 – The competition will be fierce.

If you have the resources, keep looking for properties. Don’t put yourself on the shelf to wait for better rates or more housing inventory. Why? Because as soon as there’s any change in the market that makes it more amenable to homebuyers, they will jump on it. Demand will rev back up with the smallest downtick in interest rates and enough inventory growth to see real options. 

Whether a real estate investor or a traditional homebuyer, you’ll throw some elbows if you’re duking it out on the MLS. A highly competitive real estate market creates two problems: overpaying for properties and hitting a time-consuming losing streak. 

Too many people get so caught up in the need to win that they don’t rationally think through the due diligence they’re forfeiting. The market improvements we’re waiting for will come with their own challenges.

Reason #2 – The inventory being built isn’t necessarily investor-friendly.

“Increasing inventory” is not a blanket fix-all for the real estate market’s problems, even if a lack thereof is their source. Just look at this report from Business Insider: the U.S. starter home is dead. Even back in November 2022, not a single newly constructed home was under $200,000. Builders simply aren’t building entry-level homes. Many are focusing on luxury or mid-to-high-end builds. 

Now, this isn’t to say investors only buy these entry-level offerings. However, your typical SFR fits this description more than high-end real estate. For the most part, investors are looking for properties within the market average and appeal to the average renter household. And a $500,000 property that is not! 

The point is that new inventory largely won’t serve the needs of your average SFR investor unless that new inventory is built-to-rent. Inventory growth won’t directly benefit an investor until it impacts overall housing trends.

Reason #3 – You could be waiting a LONG time.

There are times when it is appropriate for investors to wait and see. Now isn’t one of those times. As mentioned before, any hint of a buyer-friendly shift will flood the market with pent-up demand. Those incremental changes will come with a push-and-pull that won’t necessarily make for a more favorable market. 

It’s important to remember, too, that the real estate market as we know it has changed. We’re not going back to pre-pandemic prices. While things can (and will) move into a healthier place one way or another, we don’t really know how long that will take. Inventory has lagged behind for well over a decade at this point. Catching up is hard to do. Not only that but prices – short of a major correction – aren’t going to drop significantly. 

Don’t misunderstand. We’re not saying buy just because you can. It must still be the right opportunity for your strategy and investing goals in the right markets. We simply warn against waiting to invest at some undetermined point in the future when things “get better.”

What should investors do if they wait? 

Maybe you are in a season of waiting. Here’s how you can prevent that waiting from harming your passive wealth-building potential:

• Keep looking for opportunities anyway. You never know!
• Define your KPIs and valuable metrics. What would make you invest right now?
• Ask yourself what you’re really waiting for. What’s stopping you? 
• Work towards other financial goals in the meantime. Paying down debt, bolstering savings and IRAs, improving credit, etc., puts you in a better position to invest and absorb risk.
• Explore your options. You might be missing out on perfect opportunities simply because you believe now isn’t a good time for what you do. How can what you do pivot and adapt to the present?

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