U.S. Housing Market Is Nearly 4M Homes Short of Buyer Demand
wsj.com
wsj.com
Buyers are waiving nearly every contingency, they know sellers basically have all the marbles right now.
It's a 180 degree turnaround from 3-4 years ago when the same property would have lost us over $100k on the market. A nearly $200k markup over less than 4 years is crazy.
so, if it'll go so fast, couldn't you sell for even more?
i keep hearing these second hand tales of houses going under contract in <24 hours, and that seems to imply at least a few more dollars could be squeezed out of the sale.
Most serious buyers are ready to go in this market and will come in strong with their best offer days after it hits the market.
Plus, realtors put a lot of pressure on sellers to accept an offer especially when it's over asking price. They'd rather have 2 sales a week at 98% of max price than 1 sale a week at 100% of max price.
With the quick sale they have vastly reduced expenses. No brochures, web-site pictures, open houses, etc. Fewer showings also save time.
An extra $10,000 in the purchase price puts about $200 in the agent's pocket. And $9300 in the seller's.
With a realtor in the middle of a transaction, it's not solely between a willing buyer and seller.
The realtor has interests orthogonal to both parties. These interests are driven by their overhead, access to working capital and the time value of money. As well as their personal timelines...try to close a real-estate deal the Friday before a long weekend or the Monday after.
my recollection from buying a house (even in the buyer's market of 2008? or 2009? eh), was that the seller had 7? days to accept/reject. so sellers now should be able to just accumulate a pile of offers, i'd think, before having to reject any?
> They'd rather have 2 sales a week at 98% of max price than 1 sale a week at 100% of max price.
well, that certainly makes sense. that extra 2% times their 7% probably isn't worth any risk, let alone screwing around further on your house when they could be moved on to the next one.
in the end i expect a bunch of factors are contributing, and i'm expecting the explanation to be more satisfying than whatever reality is going to provide.
The expiration of the offer is determined by the prospective buyer. You can write an offer that expires in 1 hour if you wanted to. But most people do say 1 week.
> so sellers now should be able to just accumulate a pile of offers, i'd think, before having to reject any?
Yes, most sellers here collect sealed offers for 1 week and then review them all at once. It's rare to have a house with no issues not accept an offer after 1 week. Some sellers even choose to just list for a weekend though. It's insane.
I'd wager that 75-90% of that gain came in the last 12 months alone.
In the Santa Cruz Mountains, houses are going within days well over asking to buyers with all cash offers.
Our realtor friend listed a house for $1.5M, and within 48 hours had 7 bids, topping out at $1.85M. The people who bid $1.6M didn't even get a counter offer.
They said it's a mix of Silicon Valley millionaires and billionaires buying 2nd+ homes outside of the city.
Where I live in south Orange County, as well. Listings are in the market for 1-2 days tops in my neighborhood. It's ... insane.
The realtor wants a low price for a quick sale. Their commission is on the total purchase price.
If you have a mortgage, your profits are all on the back end. If you get $10,000 more the realtor only makes some fraction of $700...about $200 assuming 50/50 agency split and 40/60 broker-agent split.
You make $9300.
The incentives are grossly misaligned when it comes to getting full market value. The agent has almost no incentive. You have high incentive.
If the price is too high, someone can always low ball.
Post 2008 there were reit corps formed to buy up rental properties, and there was a visible shift from personal ownership towards own to rent.
The labor and material shortages are definitely complicating factors, but historically the biggest problem is that places with a lot of jobs tend to not permit much housing to be built in the first place, thus the recent labor and material problems are merely compounding a regulatory created deficit.
Edit: to riff on this more, in most of the world you can make decent bricks by baking the dirt underneath your feet (not quite that easy, but close). A lot of places also have ample quarryable stone. So if you had sufficient capital and a bit of know how to get it started, you could set up a new city with a largely local material supply. You’d have to import some labor, but labor shortages are more a function of regional wages than of there literally being no one around willing to work. The hardest part is the location, as you’d need to find a place that was close enough to vibrant economic centers to pull in jobs, but not within the regulatory ice bath of those same places. That’s a tough one, but there are some places that could work.
Something I found out. In the ten years after WWII the Federal government used it's WWII command economy powers to force builders to create new housing.
I think I've come down on the side that the current fad of monetarism plus the free market doesn't provide enough house stock. And reliably creates price bubbles.
A great example of that is the older parts of San Francisco, where I lived for years. There are lots of old Victorian homes that are comfortable single family residences with nice back yards, but at about twice the density of typical suburbia because they don’t have side yards (aka they are townhomes). Mixed in there are lots of 2-3 story buildings with shops and offices on the ground floor and apartments above.
That was a wonderful place to live! So wonderful, and also so scarce, that every place like that around the country is skyrocketing in price over the last 10-20 years.
What I would love to do is build a new town of middle density, “European style,” if you will. But that is so scarce because it’s illegal to build in the vast majority of US land area.
Hence, to do it, you need to be building somewhere outside the jurisdiction of cities and counties with conventional zoning, which really limits your options.
And finally, 200 homes isn’t enough to form the critical mass of a European small city. You probably need more like 10k homes (for a population around 25k) for it to work.
(I'm describing the current situation there, not saying it is a good thing)
One issue is that the best place to build it is where there are already enough people to justify things like usable public transit, so that people living there can access a larger job market and so on.
Putting in a street is that magnified multiple times over plus dealing with additional demands from the town, making sure lots adhere to minimal zoning acreage, drainage, street lights, sidewalks, fire hydrants, on and on. Plus political maneuvering with the planning board to make all that happen. There’s also the financial part of being on the hook for the land and the construction loans while you deal with schedules for everything.
Putting in streets is an intensely multi-discipline skill.
In other places there are probably a lot of things that could be done at the planning level to make densification more likely. That's not the same as a cohesive project, but it might have a similar effect.
The hard part, IMO, is getting the whole thing started.
EDIT: just a month ago there were all the stories about how San Francisco's property prices were plummeting. It seems like a wild ride.
Houses are so expensive, and rising so quickly for shite buildings, that it is unnerving. I recently looked up my first house I bought in 1991 for $100K in Emeryville and it is going for $900K now. There's no effing way I could afford to live in my old house, my salary/net-work didn't increase 10x in 30 years. This is scary as hell.
Prices will continue to go up significantly in places that are deemed desirable to live in until the prices are so high as to deter enough demand, then price growth should stabilize somewhat or recede if the market overshot.
When will this end? When there are enough houses to house people in the places they want to be housed.
And in fact, one could argue that the inflation is already here, it's just not evenly distributed. It's in financial assets - stocks and real estate, and maybe Bitcoin, but not so much in everything else.
The US dollar will still be worth a dollar in the US (hello tautology). It's "value" relative to other currencies and most other goods doesn't matter if you make US wages and buy a US house.
Unlikely. More likely it will just flatten out for a while.
Yes, but there is a catch. You have no way of knowing when it will pop. Could be in a few years, could be in 5, could be in 10, could be in 15, could be in 20-30.
With this in mind, at some point, it just starts making sense to join the bubble on the ride up, instead of just sitting with no property and be proud of how "right" I was in my belief that it was a bubble all along.
This isn't a bubble and it will continue and eventually, even us who make really good money will not have enough and we'll just be renters.
In most places it is not a bubble:
* https://awealthofcommonsense.com/2021/04/why-this-is-not-ano...
Millennials are now the largest demographic and are in the start-family / buy-house phase of life: the oldest ones are 40.
Low interest rates (to help with economic recovery) make borrowing cheap so there's extra money sloshing around on the demand side of things. Inflation-adjusted monthly mortgage payments are lowest they've ever been since 1989:
* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
The pandemic has more people scrambling for more square footage.
Perfect storm.
Rising prices are mostly a detriment when saving for a downpayment.
Great time to be a builder, bad time to need a building.
For example, with PG&E electricity in CA costing up to 40¢/kwh solar becomes practical.
I don't know what other technologies, maybe modular/prefab or 3d-printed concrete or ...?
There is some interesting work being done in ICF, which is better than 3d concrete. Prefab houses are limited to what goes on a truck (meaning weird walls), and often done to mobile home quality.
Looking at the article it seems like on of the issues for the housing crisis is lack of development.
There is no correct way to build. There are many different methods, standards and philosophies and none of it is backed up with very much evidence because of the culture of the building trade and how old it is. Your own personal judgement and research will determine how everything is done down to the type and placement of fasteners. The only way for you to understand if it’s worth it is for you to learn everything about it, put it in the context of your situation and have your own opinion.
What I will say is that almost every house in the United States is built poorly. The common standard practices are very backwards and prone to failure. I would never buy an expensive house unless most of the value was in the land.
I would love more details on why this is (certainly I'd expect poor build quality in certain housing boom areas in Florida, but not everywhere).
Also I've always thought reinforced concrete was the way to go, over wood, if I lived anywhere near hurricanes. I also thought this might mitigate against high wood prices recently. Apparently it doesn't though - still need molds made of wood to hold the concrete in place while it dries and those are generally thrown away after.
Are there states that have different tax rates for lived-in and rented property? If so, can you supply some specifics?
Understatement of the century. People started very bloody revolutions for much less.
https://eyeonhousing.org/2021/04/housing-starts-spring-forwa...
Between Byzantine development regulations, density and growth caps, local zoning boards that allow any development to be dragged through years of negotiation as long as neighbors show up for meetings, the actual “building” part is very hard to get to. Beyond the cost of lawyers, years of property taxes paid while negotiations stall, etc., the years-long timescale of these developments also makes financing hard to come by, limiting the number of projects in progress at any given time.
No surprise that the result is not enough housing, and a huge increase in price: demand is growing and relatively inelastic — the population keeps going up and everyone needs housing!
in SF, the price of single family homes have gone to the moon, while the price of condos are down 10-33%. (yes, 33%)
These institutions are partnering with U.S. housing companies to buy or build rental homes by the thousands. In suburban neighborhoods near cities such as Atlanta, Las Vegas and Phoenix, blocks of families are sending monthly rent checks to ventures backed by Canadian pension funds, European insurers, and Asian or Middle Eastern government-run funds.
https://www.wsj.com/articles/that-suburban-home-buyer-could-...
For current homeowners, one good way to preserve and grow the value of your home is to support policies that reduce new supply from coming on the market.
New supply is prevented from coming on the market through high costs and ever expanding rules and regulations.
Persistent low housing supply is the expected outcome when housing is treated as an investment.
This just isn’t true, it is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density.
Here’s how it would work otherwise: family buys single family home in year A for $100k. Lives there for a while, then sells in year B for $200k. The buyer is a developer, who then constructs a larger building on that same lot consisting of 4 apartments that now each sell for $100k again. Original family gains in wealth, developer makes tidy profit, new families can still buy a place to live for $100k. All numbers inflation-adjusted, you pick A and B to make whatever return you think is reasonable.
This is how densification happened almost everywhere until zoning laws went crazy mid-century.
Note what you don’t get out of this arrangement: a neighborhood that doesn’t change for 40 years; the ability to live in the same type of house your parents did, in the same neighborhood, for the same price. But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like.
What’s not sustainable is everyone having a suburban style detached single family home without increasing density in perpetuity. That is what leads to this contradiction.
The non-density alternative is sprawl, where prices rise in long-established neighborhoods, and outlying new developments are where you can buy new houses for less—which is what you observe all over California.
Now comes prospective buyer C who can’t afford to live there unless new developer D buys and builds. However B is ok with their profit and doesn’t sell.
Unless you tax in a way such that the maximum capacity must be used (and that can be gamed easily) you’ll always run into this. This is the ideal situation but then incumbents will fight to change what maximum means.
The problem is that there’s no standard. If it were said that a living space must be 300sqft + 300 soft per person things would converge, but without that you get sprawl or comfortable density. A decent compromise is locale adjusted limits but then you run into the same original issue. Rinse and repeat.
Indeed, there have been proposals to address this!
Truth is, density is super nonuniform — when people fear “Tokyo” they just don’t want to live in Shibuya or Ginza, not the leafy outer suburbs that are still part of Tokyo metropolis, and are quite nice.
With the exception of Manhattan (70k/sqmi), probably all the USA could double in density — enough to support another 70 years of population growth — with minimal effect on neighborhoods. This is one story-houses in inner suburbs becoming duplexes, two-stories going to 4, etc. over the span of 70 years. You’d barely notice the change.
Instead, we’ve decided to engage in the largest-ever wealth transfer from younger, poorer Americans to older, wealthier Americans the country has ever seen.
The example I gave above is meant to illustrate this. “Housing” remains affordable — a family can still purchase a 1200 sqft unit in a desirable neighborhood for a reasonable amount of money.
But the value of a particular house or apartment grows our[acing inflation because (of course, assuming more people want to live in that area—which all housing price growth is predicated on anyway) the demand on land is high, and a developer can come in and increase density on any particular lot.
In other words, the cost of housing remains affordable while the cost of any particular house or apartment grows above inflation, because each particular unit reflects a claim on land, the comparatively scarce resource.
Everyone needs housing, but not everyone needs a detached single family home on a half-acre lot.
In other words, The piece that is missing from your assessment is that a house is two things: land and a structure on top; the value of the land can go up, ensuring a high return for the owner of the land+structure, even as new structures can offer fractional claims on that same land at a more affordable price.
I’m happy to dig in further here if I’m still not being clear!
The areas where housing is no longer affordable are the areas where you can’t buy any housing with the median income, not where the fanciest housing is inaccessible to the median income.
What form that housing takes (detached house, apartment in a duplex, then 4-pled, then larger apt building) will change over time as density increases.
In addition, to making something split into quarters each time it's "sold and redeveloped" isn't possible, as you'll run into a lack of space at some point. You could potentially do this one time.
Ahh, the future is bright.
Since the industrial revolution (at least?) people have got richer, so incomes have grown faster than inflation in the long term.
So it is sustainable for the value of property to increase faster than inflation, in that sense property can indeed a valid and sustainable long term investment.
But overall, in the long term the value of property cannot increase faster than incomes. Where it does this can only be temporary and a slowdown is unavoidable.
If the housing supply rises, this puts downward pressure on home prices, which means they stop being a good investment.
Consider a hypothetical where no new housing was built for a decade, and existing housing is wildly overpriced. If your thesis is correct, then someone buying on the last day of the building moratorium is not making a good investment, because prices will either drop, or stagnate right after they bought.
Unless you mean to tell me that the cost of housing is the same regardless of whether or not construction is happening... (Which would be a truly odd claim.)
The thing with good investments in that in a world of low interest rates, prices for them get inflated, as mountains of cash are trying to find some place to go.
Society wants stability and homeownership provides that.
So owning a home is valuable - add capitalism, land, time and you get an investment whether you want it or not
I see this cliche often but it's simply wrong. Housing prices don't need to increase over time for housing to be a good investment, as long as the rental yield is sufficiently high relative to cost of capital.
nothing make sense, and nothing is fair