There isn’t enough housing for the population. Spoiler alert: That’s the end of this story.
I thought I might start this article with the conclusion, a literary trick often used by storytellers to build suspense. Alas, there is no suspense when it comes to housing. No, there’s no mystery here at all; we simply don’t have enough housing. And notice that I am carefully using the word housing, not homes. This is to emphasize that we have a structural problem, not just a problem of wealth inequality or a battle of the haves and have nots. We have not built enough shelter for our people and California is the worst, ranking at 49th in unit per resident ratio.
According to data aggregator Statista, we built 8.9M units of housing between 2009-2019. This represents the fewest number of homes built over the course of any decade going back to 1920 when record keeping began. Now contrast this: It is estimated that the Millennials are 72.1 million people, the largest generation on record. This generation of people is just now starting household formation – at the very time that we as a nation are building the fewest number of new homes on record. If you want to understand why Case-Shiller’s numbers are so crazy, all you need to do is look at those numbers. 72.1 million people are seeking a place to live and there are fewer available than ever. Sure the pandemic and historic rates are characters in this story, but by no means are they the story. Of course, not every Millennial is looking to move. Some have a place already, while others are living at home or with each other but that’s changing by the day. They’re moving away from parents or their roommates wanting a place of their own. If 72.1M sounds like a lot of people, that is because it is. This massive demand in the face of anemic supply means prices are skyrocketing. Take Phoenix for example, where in December 2021 home prices went up 32% year over year, helping it maintain its position as the number one city for appreciation [Check out what your home may be worth here]. Naturally, one immediately jumps to the bubble talk. This can’t possibly be sustainable. Yet, this is the 13th straight month where Phoenix had the highest YOY % increase in home values and they have tons of buildable land and a fairly accommodative approach to building. No, if this is a bubble, it isn’t popping anytime soon.
Not everyone is a buyer. Renters are becoming a larger and larger percentage of our residents. But this means rents are climbing too. Rents had the single largest annual increase in history in 2021. And guess who wants to get in on that action? That’s right, investors, both large (Wall Street’s Blackstone comes to mind) and Small (Mom and Pops). Investors represented 17% of all buyers last month, squeezing out the would-be Millennials [Find us on social media]. So, we have lots of people looking but scant supply to satisfy the demand. A demand that is fueled by household formation, investors, and strong economics and if that weren’t troublesome enough, the median age of a home in the US is 37 years. In fact, 57% of the homes in America were built prior to 1979. Our housing stock is not only in short supply, but it is also getting old very fast.
So why are prices through the roof? As I said previously, there’s no mystery here. We haven’t built enough homes to meet the requirements to house our people and this is a structural problem. Doubt me? Take a drive through Los Angeles and you’ll see what happens when a city doesn’t have enough housing to shelter its people. What does this mean if you’re a homeowner? Your value is going up, big time. I predicted in December that we should expect a huge spike this spring and that’s exactly what’s happening. Yes, rates are higher but that has done little to slow demand. Prices are going to continue to go up and if ever there were a time to cash out, this would be it. But you better get the right agent – one that understands the market and can advise you on getting the best terms and the best price or you may feel taken advantage of. If you’re a buyer, you’re scrambling to find a home to buy and capture those sub 4% interest rates before it’s too late. BTW, this is just another reason to make sure you have a strong agent presenting your offer. If there aren’t enough homes, you’ll need every possible advantage to win the bid [Contact Tim here]. What’s going to happen? Prices continue to rise; that is until rates get to 4.5% and then maybe the foot lets off the pedal – some. Even then, don’t expect a huge correction because the conditions that got us here, aren’t going away.