Inventory Starvation: How Investors Are Winning in Low-Supply Markets

Inventory starvation happens when the supply of available homes falls short of buyer demand. It creates an unbalanced market with fewer listings, increasing competition for investors and traditional buyers. High mortgage rates and economic uncertainty have led to record-low levels of housing supply across the U.S. housing market. Although data shows housing inventory is slowly creeping back up, it remains below historical averages.

Low-supply markets impact investors and traditional buyers differently. Investors need data-driven insights and local knowledge to pivot to an off-market strategy to win in low-supply markets in 2025. Limited housing options, skyrocketing prices, and potential for bidding wars are compressing profit margins for investors.

Winning in low-supply markets requires investors to make smart and faster decisions. Privy’s real-time data automates the slowest parts of the investing process, conducting instant comparable analysis and making it easy to identify off-market opportunities. Read on to learn the proven tactics investors use to win in low-supply markets by leveraging direct-to-MLS data and tools like Privy’s LiveCMA™. 

What Causes Inventory Shortages

We’re seeing inventory shortages across markets in the United States, influenced by macroeconomic factors causing supply constraints and increased competition. 

Rising interest rates are discouraging homeowners from selling to maintain their existing mortgages at lower rates. The rising cost of materials and labor shortages are accumulating in construction delays, slowing down new housing development and renovations. 

The available supply in low-inventory markets is under further pressure from landlords and institutional buyers holding single-family residential properties long-term. This economic uncertainty causes sellers to be more cautious about listing their properties as they’re unsure about finding a replacement property.

Impact of Inventory Starvation on Investors vs. Retail Buyers

While traditional buyers often find themselves priced out by bidding wars, real estate investors encounter a unique set of challenges in low-supply markets. Cash-ready buyers benefit from shorter negotiation windows, leaving investors relying on alternative financing options on the back foot. Inventory starvation leads to higher prices, causing profit margins to shrink.

Investors who pivot their strategy can still win in low-supply markets by leveraging technology to identify off-market opportunities. This strategy can allow investors to engage with hidden inventory and secure deals without the pressure of other investors creating a bidding war. Understanding the causes behind inventory starvation enables investors to identify potential opportunities and understand the wider market context.

Investors face two main challenges during inventory starvation; supply constraints and increased competition. 

Supply Constraints

Labor shortages, increasing material costs, and ongoing supply chain disruptions are slowing down new construction, adding to an already bleak picture for investors. Other factors have also delayed new developments, including local zoning restrictions, and longer permitting processes. 

While there are fewer properties actively on the market, the pipeline of new construction is also slower and below historical averages. These ongoing supply constraints suggest that a low-supply market is something every investor should be prepared to encounter in 2025.

Current homeowners lack motivation to sell their properties as they’ve locked in lower mortgage rates. If they sell their property, they’re going to have higher monthly mortgage payments, causing property owners to stay put for longer, even if they’ve outgrown their homes. Inflation concerns and changing capital gains tax policies are adding to economic and regulatory uncertainty. 

This growing reluctance amongst potential sellers has created a bottleneck in the supply chain across local markets. There are also fewer distressed properties available as mortgage forbearance programs have changed in recent years, and economic recovery elsewhere has helped homeowners with lower mortgage rates.

During low-supply markets, institutional investors and private equity firms often acquire a portfolio of single-family homes, renting them out instead of selling. These homes are typically rented long-term, meaning they don’t re-enter the market, making it more difficult for investors to find reliable comps.

Increased Competition

Despite low supply, demand remains strong as more first-time buyers enter the market and property trends evolve. The work-from-home culture has led to greater demand for more space, including for outdoor living. 

This market imbalance leads to increased competition and the potential for investors to overpay for properties. Cash is king in markets with inventory starvation, giving potential investors and retail buyers with more liquidity the ability to secure better deals with an all-cash offer.

Supply constraints and increased competition can cause a headache for even the most experienced investors in low-supply markets. With less inventory, you can expect to spend longer searching for properties with higher acquisition costs and a greater risk of overpaying. 

If you’re planning to invest in neighborhoods with low supply, you need to leverage data-driven technology, like Privy, and pivot to off-market sourcing. 

Why Traditional Search Methods Aren’t Enough in Low-Supply Markets

Simply browsing a Multi-Listing Service isn’t enough to find potential investment properties in an area with inventory starvation. You need to be proactive and think outside the box. Traditional search methods aren’t enough in low-supply markets, with even wholesalers facing challenges.

Here are four reasons why you need to adapt your search strategy:

1. MLS Listings Are Picked Over Quickly

When a new property arrives on an MLS, there’s only a narrow window to act. The same challenges in hot markets exist in low-supply areas. There’s an urgency to act that forces investors to take an aggressive approach, conducting comparative market analysis and due diligence as quickly as possible to evaluate a potential deal. If you get an offer in before the property goes under contract, you can still end up in a bidding war that results in price inflation, making the investment no longer profitable. 

2. Manual Comparable Analysis Slows Decision-Making

Traditionally, most investors conducted their own comps, calculating after-repair values (ARVs) on datasheets and pulling estimated costs to attempt to estimate potential renovation expenses. Manually comping drastically slows your decision-making with a high risk of errors if your data is not time-accurate. Privy automates this entire process with to-the-minute data that gives you an instant market overview.

3. Overreliance on Wholesalers and Agents Can Limit Deal Flow

Real estate agents and wholesalers have often partnered with investors to help source potential deals. However, an overreliance on these partners can limit your deal flow in these low-supply markets. Wholesalers are more likely to charge an enhanced premium due to market conditions, and most agents will focus on retail buyers and sellers, avoiding potential off-market listings. While these partners can help with property sourcing in a stabilized market, their potential is limited in areas with reduced inventory.

4. Expired, Withdrawn, or Off-Market Properties are Missed Opportunities 

A traditional MLS search will usually miss listings that have been withdrawn or weren’t fully listed. These properties offer an opportunity to explore a potential off-market deal and can provide important comps if you’re searching for similar properties. If these listings have expired or been withdrawn, the owner may still be motivated to sell. This creates an opportunity to negotiate a potential off-market deal, avoiding a bidding war for the investor and the hassle of relisting for the seller.

Why Investors Need New Tools and Tactics in Low-Supply Markets

Investors must look beyond MLS browsing and manual analysis to win in low-supply markets. Privy is designed to give you a competitive edge in difficult markets with investor-grade comps, access to off-market data, and real-time alerts for smarter and faster decision making. 

Incorporating a tool like Privy into your investing strategy can give you faster data access with real-time alerts to new listings that match your portfolio. Privy automates the slowest parts of the investing process, automating comps with real-time data to provide accurate ARVs and key metrics in just minutes.

Integrating technology into your deal workflow can help optimize every step of the investing process, from sourcing off-market listings to contacting sellers and even mimicking proven investor strategies for the local area. 

The Rise of Off-Market Strategies in Low-Supply Markets

Successful investors can win in low-supply markets by going beyond the traditional MLS search. There are multiple ways investors can generate potential off-market opportunities, either in-person or remotely. Privy makes it easier to source off-market deals by identifying distressed properties and leveraging public record information.

Here are 5 strategies for finding off-market properties in low-supply markets:

1. Driving for Dollars

‘Driving for Dollars’ is one of the most popular sourcing methods for investors searching for distressed and neglected properties with motivated sellers. 

While the traditional method involves driving through neighborhoods, you can conduct a virtual drive with tools like Google Street View and Privy to identify potential neighborhoods with possible off-market opportunities. Look out for areas with existing investor activity and research the ownership of properties to reach out to the owners directly.

2. Direct Mail Campaigns

If you find a motivated seller, a direct mail campaign is one of the most effective ways to start a potential purchase negotiation. While you might contact one seller directly, investors typically focus on one area and generate a list of potential targets, including owners of pre-foreclosure properties, absentee landlords, and recently inherited properties. Make your local knowledge evident in your initial contact and follow up at least once.

3. Cold Calling and Text Marketing

An alternative to direct mail campaigns is cold calling and SMS. It gives direct contact with potential sellers and opens an immediate two-way conversation. While you might want to immediately call, sending an SMS first can lay the foundation for an eventual phone call and act as a primer for your conversation. Text messages are less intrusive and more likely to have a higher response rate than cold calling, as particularly younger sellers may not answer an unknown number.

Make sure your list of contacts for cold calling has up-to-date phone numbers and create a script to structure your initial message. Don’t make a hard sales pitch and instead present your interest as a potential solution for the property owner.

4. Partnering with Wholesalers and Agents

Wholesalers and agents can be aan venue for potential property sourcing if you find the right people. Building a strong relationship with an investor-focused agent or a motivated wholesaler can help you access off-market properties faster or even properties just before they’re being listed. 

Agents have access to sellers who are already motivated to buy and can introduce them to investors who can offer an off-market deal as an alternative to a potentially lengthy listing process. Wholesalers also have relationships throughout the local area, having experience with pocket listings, and may work with investors for a faster sale.

Privy connects you with investor-friendly agents who can share local knowledge and open potential avenues for off-market deals. If you’re meeting with an investor or agent, share your ideal buying criteria and ensure they understand your portfolio style, as well as your commitment to making a swift deal.

5. Data Mining and Accessing Public Records

MLS isn’t your own data source when navigating low-supply markets. Go beyond traditional listings and search through public records to better understand the local area, including its future potential, and records relating to property ownership, including code violations or liens on properties.

Off-market deals require creativity, perseverance, and a data-driven strategy, but they can be a winning formula for low-supply markets and a crucial way to diversify your portfolio. Leveraging the potential of data-driven platforms like Privy with traditional methods, such as driving for dollars and direct mailing campaigns, can help you find hidden opportunities in any market.