First-time homebuyer Dena Jackson began her search for a house in Northeast Baltimore at the beginning of February and did not tour a new home for two straight weeks because inventory was so low — something she did not anticipate.

When houses finally became available, she looked at five homes in one weekend, and then another five the next weekend. After two weeks of touring homes that did not catch her eye, Jackson, 38, recently took a second look at a home and submitted an offer, which was accepted.

Although she found a house she loves, Jackson said she said the process was not easy and the housing choices limited.

“I have four different ZIP codes that I’m looking in, and I don’t have a lot of options in those areas,” Jackson said. “If it is an option, it’s like they’ve cut corners with the renovations.”

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Jackson’s experience reflects Maryland’s — and the nation’s — housing shortage, which came into the limelight in early 2020 before the onset of the COVID-19 pandemic and persisted after the federal government recently raised interest rates.

Inventory is low not only because of rapidly increasing mortgage rates, but also because there isn’t enough new home construction, the number of high-priced homes on the market, and older generations are staying in their homes for years longer than had been typical, according to economists and realtors.

Yolanda Muckle, president of Maryland Realtors, said Freddie Mac and the National Association of Realtors estimated Maryland was short 80,000 housing units in 2020, which was 50% less than the 2022 estimate of 120,000 units.

New listings of homes for sale in the Baltimore metropolitan area – Anne Arundel County, Baltimore City, Baltimore County, Carroll County, Harford County and Howard County – decreased by 11.5% from January 2022 to January 2023, according to the Bright MLS January 2023 Market Report.

Low inventory originated with the 2008 recession, when construction on new houses slowed, according to Lisa Sturtevant, Bright MLS chief economist. The pandemic then exacerbated the low inventory seen across the country when construction halted and historically low interest rates led people to refinance and stay in their homes. Just four years ago in Baltimore, there were double the number of houses on the market compared to today.

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“So if you were going out looking for a home to buy right now, you would find half as many homes as there were on the market just four years ago,” Sturtevant said.

Jojo Olaseha, Jackson’s real estate agent at Jojo and Associates, said there are more buyers than homes available for sale. This means the housing market is in a seller’s market: Homes sell very quickly.

“Sellers feel like, ‘Well, if I sell my home, where am I going to buy because inventory is low?’” Olaseha said. “And they know, ‘I’m going to sell very fast, but I may have to rent for a year. I may have to do a short-term Airbnb or short-term rental, or maybe I’ll stay with my family.’ So that’s something that sellers are really having to think about.”

In Baltimore, the block-by-block real estate varies so drastically that not every block is desirable for every type of homebuyer, Olaseha said. Additionally, the vacancies in the city add to the low inventory.

“We have so many vacant and abandoned homes, that lowers the amount of inventory we can have,” she said. “And so it’s great when investors come in and they flip the block, but we need to do all the houses on the block at one time. Folks really don’t want to live through, ‘I have the greatest house on the block,’ and then all of those are vacant or dilapidated. So Baltimore’s vacant homes and dilapidated homes are really a problem.”

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Inventory is especially low in the counties surrounding Baltimore, said W Home Group licensed realtor Julia Neal. In the counties, the market is tighter and more competitive and there could be more than 20 offers on a home, which could drive up the cost of the home by thousands of dollars.

“In the city, it’s still competitive, but it all depends on how much inventory is already there and how great the home is priced,” Neal said.

This time last year the U.S. average interest rate for a 30-year fixed rate mortgage was 3.89%, and it is now 6.5%, according to Freddie Mac.

Because interest rates were so low, many people took advantage of the rates and bought homes, said Steve Pipich, realtor and founder of SP Home Team.

“People were buying at that time based on opportunity, not necessity,” Pipich said. “You’re seeing people pay above list price and offers that people are thinking were crazy because of the opportunity [of] how low rates were. So obviously, at some point, that had to change.”

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Last year, if a buyer had $2,200 to spend per month on a mortgage at a 3% interest rate, that would have gotten them a $350,000 home. With an interest rate of 7%, the same mortgage would get a buyer a $250,000 home, according to calculations from Brittany Bobbs, vice president of sales for Coastal Lending Group. Both are based on a 5% down conventional loan.

The interest rate that a realtor quotes to clients varies per person depending on the kind of loan the buyer takes out, their credit score, what their down payment is, and overhead from the lender, Bobbs said. The national rate could be 6.5%, but a homebuyer could be quoted 7%.

“Affordability is severely down from where it was even just last year,” Neal said. “So when someone is thinking about selling their home and upgrading their home, they can’t afford too much more than, honestly, where they’re in now or a little bit more compared to their mortgage payment now.”

Although interest rates increased significantly, they are not stopping people from buying homes, they are just being more cautious, said Tiffany Domneys, a realtor with ExecuHome Realty.

Neal said that no matter the market or interest rate, people are going to buy homes when it’s the right time for them. Brandi Mebane, who is looking for a three-bedroom home in the $250,000 to 275,000 range, said she initially started the homebuying process in 2020, but stopped because it just was not the right time for her financially.

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Of the homes Mebane toured, she noticed many were not in the best condition and needed renovations. She even had a contract on a home, but backed out after it didn’t pass inspection.

“My heart was set on that house and it did fall through, but I’ve been comparing things to that house, so I’m not seeing as much as I like,” Mebane said. “I do feel as though what they’re saying about there being more people than there is inventory, I do feel that. But at least we didn’t have to get into a bidding war.”

The low inventory is not only affecting homebuyers, but also realtors, lenders and mortgage brokers like Wayne Davis, a broker at Maizon Real Estate.

“Every morning I look to see what’s come onto the market,” Davis said. “Baltimore City and Baltimore County, typically there are 130 homes that come onto the market a day and today it was 48.”

He said of the homes listed, many of them need renovations and maintenance fixes, similar to what Jackson experienced in the homes she toured.

Davis and Domneys said they think home prices and interest rates could begin to plateau in the spring, which would level the market and allow more homes to be listed.

Because the interest rates have fluctuated so frequently, Neal said she is interested to see what’s going to happen over the next few weeks. She said the week of Jan. 23, interest rates were 6.25% and the last quote she gave to a client was 7%.

“If interest rates go up into the sevens and even the eights [percents], I think it will start potentially calming things down in most price points, because there won’t be enough people to compete at that price point with those interest rates,” she said.