U.S. now short 4.5M homes as housing deficit grows
zillow.mediaroom.com
zillow.mediaroom.com
Would there be as much viable demand at a given price point if you could only get a "salary x4" mortgage like you could 15 years ago? Or x2, 25 years ago? We're x10 now.
Not controlling lending is the biggest economic failure of the past century.
… homebuilding outpaces growth of "family units"!
In the UK you can track ONS census data back in decades and +1m families, +1.1m households. In the US 2011-21, it's +5m families, +10m homes. Bigger surpluses wouldn't hurt —and I would happily believe there are markets where this isn't true— but this idea of market drought causing inflated prices is too simplistic.
What has changed is that banks have leant far more aggressively in the past 30 years. If they hadn't, homes in high demand areas would be demanded by relatively fewer people, prices wouldn't be so buoyant. By "viable" I meant the price point a market bear. There's your SAD.
Another change is the proportion of owner-occupied: absolute number in the UK has stayed relatively static, while the number of private landlords has exploded. Two thirds of those privately let properties are on mortgages that again, are a financial product that has been far more aggressively stretched in the past 30 years.
High ratio mortgages have lifted this. They allow us to afford more, so the market can charge more at the same level of demand. That means we all have bigger mortgages, the banks make far more in repayments.
It's a long game and banks have won. We even bailed them out when it bit them in the arse. What's worse is they lie about the reasons in order to build more, lend more with this idea that it will magically become more affordable. No amount of building can ever be allowed to depress these prices because our institutions depend on a constant rise.
I don't have a solution. Creative sale restrictions for newbuilds (eg everlasting price capping, return to state, etc) might be the only way to have a lasting affordable housing stock but as things are, we're only a major financial crash away from the banks being able to take 20% of all mortgaged properties when people can't keep up with repayments, and one more after that to take another 20%. That's where we're heading.
The article literally says the exact opposite. If you're going to disregard the article's data and analysis, I think you need to show your sources so we can look at them together. It seems likely that we're getting tripped up on category definitions, though. The US population grew by over 21 million people from 2011 to 2021 while the average number of people in a US household dropped from 2.58 to 2.51, so it can't be only 5 million families in a relevant/meaningful sense. Atomicizing families that don't actually live under the same roof is disingenuous. An adult moving out of their parents' home becomes their own separate family unit for the purposes of real estate.
Though if you want to talk about the steady decline of the average US household size, we can certainly do that. It seems applicable. More people total and fewer people per household does turn into needing more households.
They keep squishing in apartments and tract housing everywhere there's a postage stamp of land, and it's sold the next day. Even wayyy out in the rural county. My very quiet road was a traffic nightmare by the time I moved on.
The media/government report we're at or below the replacement birth rate, and while immigration exists, the people moving in aren't all exclusively immigrants by appearance. Further, the city reports modest growth on the census.
So, where are all the people coming from? I have to assume it's mostly elsewhere in the city due to census numbers, but no idea from where or how that makes sense.
I thought about that, but the census only reports 6% growth between 2010 and 2020. Unless the census is grossly wrong, which is entirely possible I suppose.
It's unsustainable for this country to think that houses can be both (1) an appreciating investment and (2) affordable.
But in order for us to find long-term price stability, people like me must make peace with the idea of our houses _never_ appreciating beyond inflation.
I would bet you would have had a better outcome renting and investing in the SP500 instead.
S&P returned ~16% over the same period.
This is pretty consistent for the last ~20 years.
A 6.5% annualized return might not sound like a huge difference - but over 40 years - that's an order of magnitude difference in your outcome.
i.e. the difference in a $100k investment being worth $335M or $37M ($102M vs $11M inflation adjusted).
There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years.
"House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024"
https://tradingeconomics.com/united-states/house-price-index...
Except if it's your primary residence, you can get close to 30:1...
The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation.
> House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024
4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...
I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof)
Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?
You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even.
And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.
This is not how it works.
You would have to pay rent.
You'd take the opportunity cost of the difference in rent vs the cost of your house after the mortgage interest deduction (discounting principal, since that isn't a cost).
If it's an investment - you'd consider your cash-flow and principal.
I would advise to use the rent or buy calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
It is the best one I have found so far. Even in the ZIRP era, I couldn't find places that made sense buying based on that calculator. Nowadays it is even more clear cut that buying doesn't make sense financially (it could make sense for you if you put a ton of personal value on owning).
In my particular case, I hoped to live in the same place for multiple decades, and correctly guessed that my city was on a strong growth path, and was able to get once-in-lifetime interest rates.
Obviously if those factors changed housing would be a worse investment. But as it is, those are two of the best financial decisions I’ve ever made.
I've used it. It's not good.
If you asked someone to make a calculator that makes renting as attractive as possible - it would look similar to the NYT calculator.
It's not surprising this calculator comes from a city where the majority of people rent, and is read mainly by "elites" who live in areas where more people rent...
At the time, I lived in LA in this exact calculator convinced me that housing was a horrible investment in 2013.
Had I bought then instead of had my money in the S&P my net-worth would almost be triple what it is now.
Luckily, I'm doing fine either way, and did buy and lock in a 2.7% interest rate, after learning this calculator has some serious flaws and building a much more realistic spreadsheet to model it...
It assumes home prices will rise equal to inflation which hasn’t been true in recent years
It doesn’t allow you to add monthly utilities for renting but assumes 100$/month for buying. I personally have never rented a place where all utilities were covered
It assumes quite high property taxes compared to what I pay
It assumes market returns of 4.5% which is true in a long term sense but not really in the short term
It assumes rents will increase 3% per year, configurable but not true in recent years
It factors in closing costs so I guess it’s assuming you will sell at the end of the period? This is a somewhat strange assumption to me. At the end of the period I could borrow against the value of the house without selling it for instance.
I think it’s a really good tool though I wish it had just a few more options to tweak, and that the defaults got updated to reflect current rates perhaps
It also assumes the SP500 only returns 5% a year while in practice historically it is closer to 10.
On my first home, I put $5,000 down on a $96,000 house. I owe $40k (15-year mortgage) and it's worth $180k. Subtract $20k in seller costs, and $20k in expenses over the past decade and I have $100k in equity.
That is about 6x better than just investing the $5k in the S&P.
In this case you might get slightly ahead than a simple boring SP500 investment, but those returns are the outlier and it would be extremely unlikely to repeat in the future (especially with the current interest rates)
I didn’t include P+I because when it was my primary residence it’s just my housing cost (which I can’t otherwise invest) and now as a rental those are paid for out of rental income.
Regardless, my original point is that the returns outpace inflation, which I consider a political-social problem given the number of parents who are currently explaining to their kids that buying a home is a “good investment.”
I have yet to find a single place that would have been worth it long term versus renting (Bay area, which is a VHCOL) while you do the correct math.
https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
I looked into building a house and while its certainly possible its so expensive that everyone is trying to talk me out of it.
Why is it so expensive to build? is it mostly building materials or labor? Is usable land shrinking? Solve that problem and the houses will build themselves.
At the same time the new houses I'm seeing getting built in my area are a demonstration of the phrase "money can't buy taste". We have all this land to build and we choose to continue building badly-designed single family homes, mainly catering to the ultra rich in order to best recoup the building costs. I'm not against single family inherently but we should try more diverse housing options. It would be nice if we could switch it up and change zoning laws to allow mixed housing in new developments: imagine a set of small apartment blocks with retail on the ground floor, surrounded by well-planned single family units that emphasize walkable spaces and community. That would practically be as close to utopia as we could get in this country but nobody seems to have the vision to push that forward.
There are a lot of factors that play in, certainly labor, but the biggest unique costs I think were the permitting and utility tie ins. When you can bulldoze 10 acres and build 80 houses at once, the cost amortizes way down on everything, including those. When you buy land and want someone to build on it, they have to do all of that work just for your one house.
I personally don't think it's worth it to build a house, unless you already own the land, want something really custom, plan to live there forever, or just have the extra money to spend. The day after it's built, it's not worth the money you spent on it, typically. Of course, over time, that changes.
All of that said, I stepped inside about a dozen 2023 new builds across three builders, and was absolutely mortified by their build quality. Dozens of nail pops, soft spots in floors, misaligned doors, broken rafters, and even a roof truss that wasn't connected to anything on one end.
If you look at rent on the other hand it has stabilized in most location. I was even able to negotiate a rent decrease last summer.
I'm not convinced we have a housing deficit. But I'm convinced that too many people are blindly buying at whatever prices, driving the prices irrationally up.
The number of new families goes up more every year than the number of new places to live. How's your algebra?
> If you look at rent on the other hand it has stabilized in most location.
This is false. https://fred.stlouisfed.org/series/CUSR0000SEHA
Zoom in on the 5 and 10 year windows.
That doesn't mean rent has stabilized. That just means it's the less shitty of two very shitty options.
This was released today - https://zillow.mediaroom.com/2024-07-16-Nearly-1-in-4-seller...
A buyer's market looms, brethren & sistren
I have rarely seen so much narrative-driven BS as in the housing market. The realtors being the absolute best at coming up with a reason why it is always the perfect time to buy or sell.
Elastic money will perpetually confuse people, as it takes the discussion out of reality. This is not a simple "supply/demand" problem. It is artificial booms/busts that were instigated by the fed.
Home inventory is up 13% from last April with 1.6 million homes available. Builders are starting to go under water and are trying to flush inventory. 90 day delinquent credit card bills are at a 12-13 year high.
Reality is that the lies keep coming. The most simple and effective propaganda that exists is repetition. The affordability crisis is real, but inventory has not decreased and there is no "shortage"
1) in 2022, there were 16M homes just lying empty. https://www.forbes.com/sites/brendarichardson/2022/03/07/16-...
2) Around 5% of Americans own at least a second home (https://www.statista.com/statistics/228894/people-living-in-...) and given a US population of about 340M and, given the very kind presumption that: people *only* own a second home and every group that owns a second home has 2 people in it, that'd be 340M * 2.5% = 8.5M second homes.
3) "Investor Homes", which according to ( https://todayshomeowner.com/blog/guides/are-big-companies-bu... ) tend to be the small houses that people want to buy account for about 22% of purchases *per year*; and they probably aren't selling them, so year over year that takes quite a few properties off the market.
We have *a lot* of spare homes if we incentivized real humans that will live in those properties themselves buying properties and more importantly disincentivized or even punished people and companies from owning second, third or more houses. Yes, many of those houses might be in undesirable places; but among 16M "just lying empty" and 8.5M "second homes", we could probably take a *huge* bite out of "4.5M" homes.
edit: I've edited the text twice now and I can't seem to get italics working, blah.
There's an old saying "your margin is my opportunity" and I suspect that the current crop of homes that are built have decent margins, but in a deregulated market an entrepreneur could come in offer more affordable housing options with lower margins.
You can see this in vehicles. Nobody complains about the vehicle affordability problem because there are far fewer regulations in the transportation industry (don't get me wrong, there are regulations, but not a constraining as you see in the housing market). There's a vehicle at every price point. You got bikes, then ebikes, mopeds, scoters, motorcycles, sub compacts, compacts, full size, trucks, suvs, and all the way to crazy expensive sports cars.
You don't see that in house because affordable housing is not a good business. It's impossible to offer options at the lower end of the market because of zoning laws, environmental impact regulations, a difficult permitting process, nimby's, and affordable housing politicians that are really big proponents of affordable housing except "they have question about this particular housing project."
Here is a terrific video that everyone should watch that shows how insanely difficult it is to make affordable housing. A
https://www.youtube.com/watch?v=ExgxwKnH8y4
Sometimes what you need is less government regulation, not more.
edited sentence "You don't see that in house it's not a good business." to You don't see that in house because affordable housing* is not a good business.
Watch the video I liked to above. It's about a person that owns a laundromat in SF who wants to convert the building to affordable house. He basically wants to do the right thing, but the regulations make it impossible. It was EYE OPENING for me.