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64 For much of this past year, the residential real estate industry has faced a perfect storm of sky-high pricing and demand and severely constricted supply. Bidding wars for existing homes are the norm, new home builders are struggling to fill the gap, and buyers are bewildered. However, the solution may be closer than we think—in the form of distressed homes. THE INVENTORY ISSUE A recent National Association of Realtors report reflects a staggering statistic: the U.S. housing market is facing a historic underbuilding deficit of 5.5 to 6.8 million units since 2001. "New home supply has been an issue since the 2008 housing crisis, and the pandemic has worsened the imbalance," notes Suzanne Mistretta, Fitch analyst. e latest housing numbers underline the current supply situation with unsold inventory at a 2.5-month supply and properties typically on the market for a swift 17 days. "Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market," observes Lawrence Yun, NAR Chief Economist. Millennials and other would-be homebuyers are facing record-high prices for existing homes with the median price up almost 24% to $350,300. e latest CoreLogic Case-Shiller data reflect the highest prices in more than 30 years. is would logically suggest an opportunity for boomers to make a big profit trading in big homes for smaller ones—opening the door for younger buyers to get into older, less expensive homes. e question in 2021 is … where will they go once they sell? "e bigger factor is just availability of supply to move into … ere's nothing to go buy or downsize into," according to Todd Teta, ATTOM Chief Product Officer. CUE NEW HOMEBUILDERS Warm weather usually means building heats up, but this year is anything but normal. High prices have also hit the construction market. Skyrocketing lumber costs and labor challenges have driven builders to hold back. Many are waiting as long as possible to go into contract with delays common and future costs uncertain. Some builders are even going back to buyers for more money or just canceling purchase contracts altogether by way of new "termination of convenience" clauses written into the contract—allowing builders to cancel for any reason. In the words of one frustrated buyer, "It does seem—to me at least—a rather questionable practice and one where a builder Feature By: Nathan Cron FINDING SOLUTIONS IN DISTRESS The industry faces continued inventory shortages, rising home costs, and delays. The answer to the problem may rest in distressed housing.