Shadow Inventory and Shadow Demand– What it Means for the Market

June 12, 2023 | Buying a Home | By: The Goodhart Group

The biggest factor affecting residential real estate is not the higher interest rates. Interest rates have not necessarily caused prices to go down as had been anticipated. Actually, low inventory means higher prices! The biggest factor at the moment is instead limited housing inventory across the nation. 

How will this problem be solved? Experts point to a “shadow inventory” of sellers who want to sell but aren’t doing so. They are sitting comfortably with a mortgage below 5%.  But, for the right property or the right offer they may be compelled to move. 

There is another concept that might describe our current market right now and that is “shadow demand”; purchasers who are waiting for prices to drop before buying. We meet buyers who believe if they wait, that prices will eventually come down. However, prices haven’t been dropping in our market. More buyers locally are waiting for interest rates to drop and experts believe that rates will drop closer to 5.5% by the end of 2023. If that happens we will see a rush of buyers into the market exacerbating an already tight inventory. When that happens, prices go up. Supply and demand!

What does all of this mean for you if you are thinking about buying or selling? Know that if you are buying, inventory will remain tight particularly in our area. In Alexandria we see building after building of rental housing being built. People fall in love with Alexandria and want to make it their home. They are not building much new inventory here and not much is scheduled for the future except some condos. Bottom line, prices will continue to go up. 

If you are selling, anytime is a good time to sell provided you know where you are going. That is part of the service we provide whether moving in the area or anywhere in the US or Canada. Understanding more about the market you want to buy in will help inform your decision making on the selling of your home.  

Our goal is to match up some buyers and sellers who are in this shadow market so they both can move onto their next adventure.


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