Limited Inventory and How it Impacts the Real Estate Market
Market Mondays share one central theme: how to find value in a market that isn’t immediately obvious. In any given market there is a subsection often obscured from view; I specialize in targeting these properties.
Limited time inventory is a term I coined to explain how there can be an opportunity in the market that doesn’t last forever. These opportunities are typically created when the overarching market shifts, as not everyone adapts quickly enough. Back in 2008, there was a massive surplus of homes — by 2012 supply was dwindling. By 2019, homes were downright scarce. And in 2020, all bets were off as a frenzy of home buying ensued. Today, we sit with a moment to catch our breath with the spring market right around the corner.
There is one other important detail regarding limited time inventory — it doesn’t regenerate once it is used up. Unlike typical home supply, which replenishes as it is consumed by demand, this inventory only exists until folks have scooped it all up and taken advantage of the value.
So, what is the opportunity in today’s market? Where is there a glut of inventory that is just waiting to be devoured by those seeking the best value possible?
New construction spec homes.
Today’s Limited Time Inventory
What is a spec home? “Spec” is short for speculation. Essentially, it’s a builder’s bet that if they build a house in advance they will be able to sell for a profit. Spec homes are prevalent across the entire country and you can find them in all manner of price points, styles, and locations.
As 2022 entered into the fall, interest rates had risen to their highest figure since the 2000’s. This put price pressure on these inventory spec homes which were still under construction. The cost to build the home hadn’t increased, but the payment had grown significantly for buyers. This led to a supply of homes that are skewed out of proportion to the market, with some builders even selling at cost to get them off the books.
This is an example of marketing material currently in circulation by M/I Homes. Just look at that price difference! But once homes like these are sold, they won’t keep building homes they can’t sell. This is limited time inventory — if you want it, act now and get it because once it’s gone, it’s gone.
Finding Deals in New Construction
This is where a new construction specialist such as myself really shines. Most folks don’t see the opportunities until they are depleted and the moment has passed. The trick is anticipating these gaps in the market, knowing where weaknesses will form, and being ready at a moment’s notice.
Right now, nearly every semi-custom and custom home builder who had spec homes being built in 2022 is sitting on inventory just like this. Some have chosen to openly market their discounts, others decided to keep them hidden and wait to be asked for a discount. Either way, the cushion is there.
It’s important to know this doesn’t apply to ALL new construction homes. If customization is important to you, you’ll still likely pay full price. However, if you want a brand-new, never-lived-in home in a beautiful community? This is likely the best value we will see for a while.
You can read up on some of our favorite builders on our website, or seek out who is building in your community today. Stonegate and Creative both have opportunities in various communities throughout the Twin Cities; let me know what you need and I’ll get you in touch!
