From 1950 to 2008 the USA built ~25 million homes per (edit, not year) decade. From 2008 to 2018 it was about 7 million. In recent years building rates have mostly recovered but there's still that gap in production combined with everything else the last handful of years.
This isn't to discount the shift of ownership from human persons to corporate persons, that's a factor too. But just numbers of available houses versus population plays a role.
If home prices are going up, that means that demand exceeds supply. If home prices are going up everywhere that means demand is exceeding supply everywhere.
If homes are a good monetary investment, that means home prices are going up, which means supply is not keeping pace with demand.
If home prices are going up at a rate faster than wages, then they are becoming more expensive for our children. Not in a round-a-bout way, but in a direct causal relationship way.
Homes can either be affordable or an investment, not both. If homes are to be affordable that means more need to be built.
> If homes are to be affordable that means more need to be built.
Try pricing what it would take to buy a plot of land and build a home on it. In some places there are very expensive local regulations that must be satisfied. However, just the base value of some land with utility access, physical materials, and labor to assemble the home is "unaffordable." If the difference between the cost to produce a home and the sale value of the home was larger than there would be more home builders. If reducing the cost of housing is important to you than you should focus on ways to reduce the cost of producing homes.
If home prices are going up everywhere that means demand is exceeding supply everywhere.
Only if the houses are selling at the higher price. There are a lot of empty, unsold houses where the owner is refusing to reduce the price. Property economics is weird.
> If home prices are going up, that means that demand exceeds supply. If home prices are going up everywhere that means demand is exceeding supply everywhere.
Misses the fact that homes are bought (most of the time) with borrowed money and leverage.
You can either look at that as increasing the supply of money or lowering the cost of money, and its reflection in housing prices.
Another explanation is that the average new house costs more than it used to. Housebuilders have chosen to build bigger homes at a higher finish level because there's more profit in it. New affordable housing is becoming rarer.
Demand for homes may exceed supply but ask what that demand really is.
A big chunk of that demand is for 2nd or 3rd or even 4th properties as investment rental properties. Can’t afford a house in the sf Bay Area, no problem, go buy 4 investment properties in the Midwest! I know people who’ve done that.
Also look what houses are built, they aren’t starter homes in many areas. They are “luxury” (luxury per home marketers, sq ft, and price, I won’t go down the rabbit hole of what I personally think).
> If homes are to be affordable that means more need to be built.
I'm not convinced it's that simple. Houses aren't widgets that you can flood the market with an unlimited supply to drop the price as much as desired. Homes cost a lot to build and use limited resources, which means at a certain point building more increases the cost.
Picture a city that is building only 1000 homes a year and then they decide to start building 10,000 a year. Will the prices drop? If the prices were very high due to excess demand, probably not because there is enough demand to absorb those 10k units without meeting all the demand, so prices won't drop.
Ok then, let's go all out and build a million units (let's imagine that land is somehow available for that in this thought exercise). Will prices go down? No, prices will go up! Ask anyone trying to build a home in a tight market, labor prices are extremely high because there is so much demand for a limited supply of labor. If this hypotetical city tried to build a million units, labor costs will skyrocket and so will the price per unit.
There are no efficiencies of scale left in a mature industry like house builing. Building more doesn't make the per unit cost cheaper, it actually makes it higher due to labor availability.
So in those 7 decades there has been build 175 million houses. Population of usa is around 350 million. Most people probsbly also not living alone and some houses that were build before 1950 probsbly still are in use just maybe modernized.
Not familiar with USA market but wondering: Are current houses just more fragile and fell apart within 50 years?
>Are current houses just more fragile and fell apart within 50 years?
Obsolescence gets overlooked but it is important. Not only are houses often poorly constructed, but many are simply no longer desirable. For example in my area, anything pre-1960 is likely very small, possibly without a garage, and may only have one bathroom. The modern homeowner wants something better. Houses in the 1970s were frankly, weird. They don't fit modern tastes at all. Many houses built in the 1990s are falling down already because they were so poorly built. So my point is, you have to take into account not only the top end inventory number, but also that lack of desirability is a real thing that drags down actual available inventory.
Don't forget that houses get torn down and rebuilt. It doesn't happen often but it happens.
In the US, modern houses tend to be larger, have better insulation (from what I've experienced), but can be cheap in some aspects (e.g. interior doors tend to be hollow, whereas older houses typically had solid doors). Overall though, I'm not sure if new or older homes were better built. I know some really well built old homes, but some very poor built ones too, and this goes for modern homes as well. Most should last 50 years though.
You're making too many assumptions from such broad data. No, houses don't generally fall apart within 50 years. But most houses built 50+ years ago are small by modern standards, and many have been torn down and redeveloped since then. For the ultimate peek into this phenomenon look at Tokyo, where the lifespan of a house is short and any given plot of land is rebuilt several times per century.
There are a lot of old abandoned homes. I would never live in a home built before 1978. Almost certainly that home is full of lead-based paint and asbestos.
Even here in Czechia, where we mostly build out of brick/stone/concrete (and not wood), ordinary 1950s and older homes are pretty undesirable unless thoroughly modernized. (Luxury homes are a different story.)
One of my colleagues lived in such a multi-apartment block where there was a common toilet for the entire floor, so four households. In freezing weather, the toilet was bitterly cold.
Yes, Americans build everything of wood, rather than cement or bricks, like in the civilized world. Remember the tale about 3 little pigs? After 50-70 years it falls apart and needs to be teared down.
I don’t think the solution should be homes aka a scale out solution. It should be to go vertical for higher density. Apartments serve the most people and the barriers to entry are much lower than a mortgage.
Taking a mentally ill fentanyl addict from San Francisco and dropping them in a condemned house in Scranton PA is not actually going to solve the problems you think it will.
Some of the school districts near-ish me are so desperate for teachers that they will up and just give teachers a house and a car. It's not prime real estate and not a new car, but you get the gist.
There are hardly any takers.
As has always been true in real estate: location, location, location
Hmmm it might not have anything with to do with the massive money printing and forced low interest rates of the last decades...?
Its not only the us dealing with this.
In many Western countries a large part of the population has been incentivised by both tax cuts and monetary policy to own property that it's become very hard for governments to change those policies to again make houses affordable without huge cuts of the wealth of their middle-class.
We don't know if that is the primary cause though. The US population was growing at a quicker rate for much of it's history, and that population was more rural, and a number of other reasons we can't rely solely on historical data for our predictions of current behavior. With a closer to zero population growth rate and a more urbanized population we would expect there to be fewer houses built.
Additionally, the pure supply and demand argument is insufficient because it does not explain why we have failed to create the additional supply to meet the demand. In a pure sandboxed supply/demand analysis with no other factors, we would expect to see supply increase as demand increases since in theory it means building homes is more profitable. The high school version of supply/demand is that they balance eachother eventually and the timeframe over which that happens is influenced by the elasticity in price of the good in question. Something about how the housing market functions has changed in some locations.
Yes and with supply not meeting demand at least here in York county pa and Baltimore county md.. bidding wars just started to be the norm again and prices are increasing. I bid on a 200k home (a real fixer upper to flip in two years after living in it & remodeling it) last weekend it had 20 bids and I lost out to an all cash offer(supposedly per my real estate agent). That same weekend a 40 year old log cabin ($430k) had an open house where 30 showed up and it was sold within 8 hours.
Up until this month prices in this market were declining and homes sitting on the market for weeks to a month or more with lots of price drops.
It's weird spring comes around with interest rates just as high and we are back to bidding war frenzy that was 2021/half of 2022.
Would be interesting to see how different the costs and difficulties compare to the prior building boom. The red tape involved in building today is off the charts - prior generations had a much easier time building houses.
This article is missing perhaps the most important graph, which is median income to some common monthly payment metric (e.g. average monthly payment for a 30 year mortgage with 20% down).
Reason being that the article mentions interest rates, but then just shows graphs comparing to sales price. Ironically, showing a metric that took interest rates into consideration would probably highlight why the current situation is even worse, because rates have skyrocketed but prices have only come down a little bit. Of course, as others have mentioned, that is because overall sales numbers have collapsed. Owners won't sell at a loss if they don't have to, and overall employment numbers are still high. But over time people are forced to sell for various reasons, so in 5 years prices will either go way down or stay flat as wage inflation catches up.
I think these days, proportion of cash buyers in the last several years was highest in history - inequality did it's job and most people who can afford buying a house, can afford buying it on cash. And before, prices were much lower so most certainly won't fall down back again, forcing banks to invoke foreclosures. So i don't even think rising rates or falling prices may cause a snowballing collapse like they did in 2008. It's permanent - inequality and urban concentration locked next generations out of affordable housing and there's likely nothing that can be done about it.
But in Europe, we lived like that for at least two generations now. This is what a stable state, fully urbanised society looks like. Here, it's typical for someone with a mid-level management position in a bank or an IT company, with million dollar net worth and managing dozens of employees, ride a train to job an hour each day, because they can't afford to rent in the city. And people who live in the city are simply those who's families bought pre-WWI. Or those with a regulated rent contract passed down generations from the 1950s, being an overwhelming portion of the family's effective net worth.
"Cache buyers" does not really mean people buy houses with their disposable funds. It means only that the deal does not involve a mortgage contract. The deal can still be financed through a loan, just not a mortgage. During the highly competitive market in 2021 people had been takin such loans to make cache offers and beat competition [1]. Also we had massive emigration from the states with high RE prices such as CA and NY to TX and FL, with much lower prices. These emigrants might have had enough equity in their old houses to buy a whole house in the new place too.
But it would really be great if your assertion had been true, in 2021 alone 6M houses had been sold so there would be at least several million people so rich that they buy houses like groceries.
People do eventually sell due to life events, even at a loss, in fact I'd say that is probably the primary cause of sales rather than anything financial in nature. At least anecdotally, I've sold twice and both times I would have had to do it even if it was at a loss.
However, you are correct that the price is pretty sticky at the moment.
In my area, friend groups are organizing into LLPs and buying up houses for investments. Individual people home shopping have to deal with this kind of competition. Houses are bid out of their price range and become airbnbs.
Yep. Why live in a house when you can charge someone $1200/nt to stay there and a $600 cleaning fee? (Basically every house that can sleep more than 6 people in the northeast)
When I first looked at this graph, I did not have much emotional reaction.
When you look closer, each unit on the axis represents 1 year of a person's income. Each line on that graph represents 2000 hours of life toiling for a basic living necessity.
This is to be expected. Sellers are always reluctant to be reasonable when they are on the wrong side of a peak. The raising of interest rates means prices have to adjust. But after so many years of increasing prices sellers are not yet rational.
And yes, some more inventory would help. That said, as the population ages, who is going to buy all the McMansions? Price not only need to adjust to interest rate but demographics.
Prices actually have adjusted and have fallen somewhat.
What life event would cause someone who currently owns a home at a <3% rate to sell?
It’s a once in a generation type of rate. You’d have to be a complete fool or have some kind of crazy life circumstance to sell.
Over 30% of employers in the US exclusively hire remote employees. Post-pandemic it’s hard for me to imagine someone in the home ownership socioeconomic class giving up that kind of leverage advantage to move for a job.
This seems a bit extreme. If you can afford to move, does interest rate really factor in? If rates get worse you’ve still locked a better rate, if rates get better you refinance. Besides, there’s plenty of reasons to move besides for a job (and not everyone can work remotely or get a remote job with comparable compensation).
Yeah, you’re going to pay some more interest if you get a new mortgage, but don’t you just adjust your monthly finances and eat it? As long as you can hit your long-term financial goals, the “once in a generation” rate doesn’t seem so important.
Divorces, deaths in the family, growth in the family, people move to be close to certain hospitals / schools etc. Maybe one half of a marriage gets a remote role but the other doesn’t.
This is what people said about Levittown (https://en.wikipedia.org/wiki/Levittown), the archetype for postwar suburban housing developments in the USA. They did wear out, but the owners fixed them. If the housing is still needed, it will be maintained and repaired and improved.
ENTIRE vinyl villages of McMansions will be unlivable. They aren't even built to last the standard 30y mortgage because the builders know the initial buyers will sell and move on. Cheapest possible 2x4's with worst insulation ever known, all covered up in plastic siding. But hey, it's 10k sq ft right?
Also, with the american quality level of construction for houses, by then those houses will require major investments and renovations to continue to stand.
Readit News
This isn't to discount the shift of ownership from human persons to corporate persons, that's a factor too. But just numbers of available houses versus population plays a role.
If homes are a good monetary investment, that means home prices are going up, which means supply is not keeping pace with demand.
If home prices are going up at a rate faster than wages, then they are becoming more expensive for our children. Not in a round-a-bout way, but in a direct causal relationship way.
Homes can either be affordable or an investment, not both. If homes are to be affordable that means more need to be built.
Try pricing what it would take to buy a plot of land and build a home on it. In some places there are very expensive local regulations that must be satisfied. However, just the base value of some land with utility access, physical materials, and labor to assemble the home is "unaffordable." If the difference between the cost to produce a home and the sale value of the home was larger than there would be more home builders. If reducing the cost of housing is important to you than you should focus on ways to reduce the cost of producing homes.
Only if the houses are selling at the higher price. There are a lot of empty, unsold houses where the owner is refusing to reduce the price. Property economics is weird.
Misses the fact that homes are bought (most of the time) with borrowed money and leverage.
You can either look at that as increasing the supply of money or lowering the cost of money, and its reflection in housing prices.
A big chunk of that demand is for 2nd or 3rd or even 4th properties as investment rental properties. Can’t afford a house in the sf Bay Area, no problem, go buy 4 investment properties in the Midwest! I know people who’ve done that.
Also look what houses are built, they aren’t starter homes in many areas. They are “luxury” (luxury per home marketers, sq ft, and price, I won’t go down the rabbit hole of what I personally think).
I'm not convinced it's that simple. Houses aren't widgets that you can flood the market with an unlimited supply to drop the price as much as desired. Homes cost a lot to build and use limited resources, which means at a certain point building more increases the cost.
Picture a city that is building only 1000 homes a year and then they decide to start building 10,000 a year. Will the prices drop? If the prices were very high due to excess demand, probably not because there is enough demand to absorb those 10k units without meeting all the demand, so prices won't drop.
Ok then, let's go all out and build a million units (let's imagine that land is somehow available for that in this thought exercise). Will prices go down? No, prices will go up! Ask anyone trying to build a home in a tight market, labor prices are extremely high because there is so much demand for a limited supply of labor. If this hypotetical city tried to build a million units, labor costs will skyrocket and so will the price per unit.
There are no efficiencies of scale left in a mature industry like house builing. Building more doesn't make the per unit cost cheaper, it actually makes it higher due to labor availability.
Not familiar with USA market but wondering: Are current houses just more fragile and fell apart within 50 years?
Obsolescence gets overlooked but it is important. Not only are houses often poorly constructed, but many are simply no longer desirable. For example in my area, anything pre-1960 is likely very small, possibly without a garage, and may only have one bathroom. The modern homeowner wants something better. Houses in the 1970s were frankly, weird. They don't fit modern tastes at all. Many houses built in the 1990s are falling down already because they were so poorly built. So my point is, you have to take into account not only the top end inventory number, but also that lack of desirability is a real thing that drags down actual available inventory.
In the US, modern houses tend to be larger, have better insulation (from what I've experienced), but can be cheap in some aspects (e.g. interior doors tend to be hollow, whereas older houses typically had solid doors). Overall though, I'm not sure if new or older homes were better built. I know some really well built old homes, but some very poor built ones too, and this goes for modern homes as well. Most should last 50 years though.
There are a lot of old abandoned homes. I would never live in a home built before 1978. Almost certainly that home is full of lead-based paint and asbestos.
One of my colleagues lived in such a multi-apartment block where there was a common toilet for the entire floor, so four households. In freezing weather, the toilet was bitterly cold.
Tell me how that makes any sense.
There are hardly any takers.
As has always been true in real estate: location, location, location
Its not only the us dealing with this.
In many Western countries a large part of the population has been incentivised by both tax cuts and monetary policy to own property that it's become very hard for governments to change those policies to again make houses affordable without huge cuts of the wealth of their middle-class.
Additionally, the pure supply and demand argument is insufficient because it does not explain why we have failed to create the additional supply to meet the demand. In a pure sandboxed supply/demand analysis with no other factors, we would expect to see supply increase as demand increases since in theory it means building homes is more profitable. The high school version of supply/demand is that they balance eachother eventually and the timeframe over which that happens is influenced by the elasticity in price of the good in question. Something about how the housing market functions has changed in some locations.
Up until this month prices in this market were declining and homes sitting on the market for weeks to a month or more with lots of price drops.
It's weird spring comes around with interest rates just as high and we are back to bidding war frenzy that was 2021/half of 2022.
Thanks for pointing out what should have been an obvious error. Yikes.
Regulations exist to mitigate tragedies.
Reason being that the article mentions interest rates, but then just shows graphs comparing to sales price. Ironically, showing a metric that took interest rates into consideration would probably highlight why the current situation is even worse, because rates have skyrocketed but prices have only come down a little bit. Of course, as others have mentioned, that is because overall sales numbers have collapsed. Owners won't sell at a loss if they don't have to, and overall employment numbers are still high. But over time people are forced to sell for various reasons, so in 5 years prices will either go way down or stay flat as wage inflation catches up.
But in Europe, we lived like that for at least two generations now. This is what a stable state, fully urbanised society looks like. Here, it's typical for someone with a mid-level management position in a bank or an IT company, with million dollar net worth and managing dozens of employees, ride a train to job an hour each day, because they can't afford to rent in the city. And people who live in the city are simply those who's families bought pre-WWI. Or those with a regulated rent contract passed down generations from the 1950s, being an overwhelming portion of the family's effective net worth.
But it would really be great if your assertion had been true, in 2021 alone 6M houses had been sold so there would be at least several million people so rich that they buy houses like groceries.
1. https://www.npr.org/2021/12/06/1061896221/everyday-people-ca...
Supply and demand. If supply drops and demand doesn't...
That's what /r/REBubble refuses to acknowledge.
Nobody's giving up their 2% if they don't have to.
However, you are correct that the price is pretty sticky at the moment.
[1]: https://time.com/6223185/airbnbs-empty-short-term-rentals/
When you look closer, each unit on the axis represents 1 year of a person's income. Each line on that graph represents 2000 hours of life toiling for a basic living necessity.
Outrageous.
I have a hard time seeing how this can be anything but a major problem in a few years, if not before.
And yes, some more inventory would help. That said, as the population ages, who is going to buy all the McMansions? Price not only need to adjust to interest rate but demographics.
What life event would cause someone who currently owns a home at a <3% rate to sell?
It’s a once in a generation type of rate. You’d have to be a complete fool or have some kind of crazy life circumstance to sell.
Over 30% of employers in the US exclusively hire remote employees. Post-pandemic it’s hard for me to imagine someone in the home ownership socioeconomic class giving up that kind of leverage advantage to move for a job.
[X] Doubt
Yeah, you’re going to pay some more interest if you get a new mortgage, but don’t you just adjust your monthly finances and eat it? As long as you can hit your long-term financial goals, the “once in a generation” rate doesn’t seem so important.
Deleted Comment
The McMansions will be unlivable by that point. They weren't built to last.
All buildings are depreciating assets. This was true before the idea of the McMansion existed.
It’s the land that is scarce and is the appreciating asset.
The truth of the matter is that any house that is around long enough gets repaired over time.
Deleted Comment
The US population is projected to continue growing throughout most of the 21st century.
If you're waiting for people to die so you can afford real estate, you'll be waiting a long time.