Big Shifts in Housing Being Missed
Conventional wisdom and history are probably not going to be good indicators on future guidance in the housing market, and many future homebuyers may be reading tea leaves that no longer exists. There is an array of financial shifts and changes that many are not considering which could keep housing very tight for homebuyers, and these circumstances may keep housing red hot for several years.
Here are some factors that may be creating a sea of change in the housing markets:
First, for more than a decade, the United States has not built enough housing units to keep up with demand. In areas like Orlando, we are seeing 3-6 people rent a home for just a bedroom as availability for affordable rental space is nonexistent and home prices are out of reach for most moderate-income buyers. Unless those in need of a home continue with communal living or the government creates a real affordable housing policy, the demand equation for housing will remain strong as the country is so far behind in unit counts.
The stock market and crypto world are extremely volatile, and it is not uncommon that folks like Warren Buffett refer to both as casinos with rigged systems. Money in 2022 has been flooding out of those markets and it is looking for a safe haven with tangible assets and real returns. Housing and real estate provide both, and even with the crash in 2008, housing assets have returned to full value. Expect to see money flood into real estate as uncertainty grows in other markets.
Probably, the biggest change is that national home builders are not just building houses for sale, they are now building houses for rent. There has been an epiphany by builders that building a home for rent can get more people in homes because there are no closing costs or down payments. Plus, with the shortage of good rental properties the return in rental properties long-term is greater than building homes. There are national home builders presently building entire communities of rentals with eager investors wanting to finance deals. Even if the market declines in rent prices, most of these deals will provide cash flow and return good profits to investors.
The private sector is also getting in on investment housing for short-term vacation rentals. More people want to rent homes for a week when they vacation and get away from confined, high-priced hotels, and in most cases, one week of rent can pay the monthly note for a vacation rental property. There are private individuals who are making a great living holding tangible assets by building and temporarily leasing vacation properties across the country.
The multi-family portion of the housing market was the fastest growing sector in March. The demand for apartment rentals is very high with rents skyrocketing. Expect an abundance of construction activities in the next few years as the need for apartments accelerates. Plus, Wall Street money and hedge funds are aggressively looking for projects to invest in.
Unlike 2005 and 2006 when builders and amateur investors constructed homes for speculation for sale, these properties are being constructed for long-term investments, and the other advantage, most of these are being done with cash. The demand for housing is not declining despite the tumult in the economy, and there may come a time where rental prices will ease, but most of these projects can take big cuts in rent to remain profitable. This is why there will be no housing bust.
Here is the bad news for conventional home buyers. The investments in housing by builders, investors, and private sector vacation home builders will continue to keep prices high for material and labor as well as homes. This surge in investment housing could put real restraints on what is built and available to private sector home buyers. Even with higher interest rates, there is a good chance that pricing and availability will not improve as much as conventional wisdom and history would indicate.
This is not your Daddy’s housing market and cash remains King- there is a lot of cash heading to housing and real estate.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.