Some big numbers coming out
of the housing market today, and they're not looking
pretty. If you're looking to buy
or. Rent, there is a bidding war
for literally every home on the market, every fixer
upper, every every house that needs even a lot of. Work. Our house had 44
offers on it. The decarbonization trend,
that's a real thing. People are moving out of
the city. They're buying bigger
houses. I think the way the suburbs were built was a
big mistake. They should have been built
very differently. Home prices in the large
urban metropolitan areas were so expensive that
people started moving out. And then you see these
wildfires and they're not going away. And rent growth is
accelerated coast to coast. In big cities, rural areas,
east, west, south. North. It's across the
entire economy. How hot is it? It's turning
cold. Existing home sales falling
in March, but at least in part because there just
aren't enough homes to buy. Shopping for a new single
family home in the U.S. is arguably harder than
ever before. There is a bidding war for
literally every home on the market, every fixer upper,
every every house that needs even a lot of work. My neighbors, actually,
because we're on vacation, we're calling me and
texting me, saying, what is going on at your house? There's people in a line
down the block. We saw two people having a
fight. With city dwellers
emigrating to the suburbs and families looking for
home offices and bigger yards. Prices for the
American Dream home have skyrocketed. Home prices
surged in March 20, 21, up 13% from the year prior,
according to the S&P Case-Shiller index. Everybody expected housing
to really sort of dry up with the rest of the
economy. And in fact, the opposite has happened. With homeowners unwilling to
sell. A record low supply of
homes for sale has forced buyers into intense bidding
wars. At the end of April 2021,
there were only 1.16 million houses for sale in the US,
down 20.5% from the year prior. Higher costs for
land, labor and building materials have also
impacted homebuilders. So currently in the United
States, we have a huge shortage of housing. We're not producing nearly
as much housing as we should be. We know that home ownership
is the primary way of getting into the middle
class, but unfortunately there are many impediments
to that that are divided by class and particularly
race. With the 30 year fixed
mortgage rate hovering near a 50 year low and a strong
demand pushing prices to all time highs, why is the
housing supply so meager? Is the US running out of
houses? The US real estate market
is red hot. Since the start of the
pandemic, 5% of buyers who purchased a home did so
without even physically seeing the home in person. In many markets,
competitive bidding wars are the norm. There is a
bidding war for literally every home on the market,
every fixer upper, every every house that needs even
a lot of work. It's still just a crazy
bidding war. Our house had 44 offers on. It with his New York City
office shut due to the pandemic and looking for
more space for his family in the summer of 2020. Justin Goldberg and his
wife Jessica put their three bedroom Bloomfield, New
Jersey, home on the market. The house listed for
399,000. My neighbors, actually,
because we're on vacation, we're calling me and
texting me, saying, what is going on at your house? There's people in a line
down the block. We saw two people having a
fight. With multiple six figure
offers over the asking price. The house sold for
$542,000, over 140,000 more than what the couple was
asking for. But the family then found
themselves struggling to find a new home. It was a definitely a risk
for us to take because we knew that the pandemic
wouldn't last forever. His job said You'll be
working from home for the foreseeable future and gave
up their office space in the city. With little inventory on the
market. The couple signed a one
year lease on a rental and on the advice from their
realtor. They then modified their house search from
looking for a move in ready home to a fixer upper. I'm telling you, immediately
you walk into the house that you want to buy and you get
the feeling. And I got the feeling and
we walked through the house and it was not in good
condition. The bones were there. You know, there was nothing
structurally wrong with the house. Everything was
technically in good shape. Everything that needed to
be changed was pretty cosmetic. But every single
room in the house needed changes. The family of four found a
four bedroom fixer upper in Randolph, New Jersey, with
more space and a bigger yard. We wanted a bedroom for each
of our children, and an extra office or a guest
room would have been fantastic. Although the home was
already under attorney review, the couple put in a
higher bid and ended up buying the house for
$555,000, according to experts. A few key steps
home buyers can take to navigate the ultra
competitive market include getting pre-approved for a
mortgage, finding a good real estate agent, and
figuring out exactly how much you're willing to
spend. An additional option first
time homebuyers have is to rent the home back to the
seller while they look for their new home. My best
advice at this time is if you don't want to
overspend, go into a house knowing that you're going
to do a little work and you'll probably get it for
a better price. And honestly, you can turn
it into your dream home. The US has a housing
shortage, with potential sellers unwilling to show
their homes during the pandemic. In April 2021,
there were 1.16 million US homes for sale, down 20.5%
from a year earlier. That lack of inventory has
helped push the median price of existing homes higher,
up a little over 19% from the previous year to a
historic $341,600. One key factor in that
price jump is with fewer, less expensive homes on the
market. Sales at the higher end
accounted for much of the activity during that same
period. Homes were selling in
record time to typically just 17 days on the market,
while several large, publicly traded companies
like NVR, Lennar, Beazer Homes and Hovnanian
Enterprises construct single family homes, townhouses
and condos. The vast majority of new
construction in the US is done by small businesses. Homebuilding is one of the
last real vestiges of small business in America. The overwhelming number of
housing estates close to 75 or 80% is built by small
businesses, mostly family owned all over the country. Those builders have faced
serious hurdles in recent years, including pandemic
related supply chain disruptions that have
caused a spike in the price of building materials like
drywall, steel and wood. The supply chain is in
complete disarray right now from COVID. The poster child for that is
lumber. As of May 2021, lumber
prices are up more than 300% from a year ago, according
to the National Association of Homebuilders. Rising
lumber prices have added almost $36,000 to the price
of a new single family home. An aging workforce and
challenging immigration policies have also led to a
shortage of construction workers. We simply don't
have enough people. Therefore, labor prices. Are going through the roof.
Labor was a problem for us during the last housing
boom and during the recovery. And it's even
more of a problem now because in many places it
is easier for potential workers not to come back to
work and stay on the sidelines. An even bigger problem might
be the land that houses are built on. As of April 2021,
the price per single lot is up 11% compared to last
year. Real estate data firm Zonda
said new land supply is down 24% from a year ago and the
challenge moving forward is infill. How do we invest in
cities and to older suburbs? How do we reinvigorate with
greater density things like accessory dwelling units
for your mother in law in the backyard? How do we
handle people who are challenged with affordable
housing? It's all going to mean that
we have new development patterns. We new new forms
of housing. So, yes, we're not building
enough housing and we need to double or triple that
rate of housing just to meet natural growth in our
economy. And I think we can do that. But we have to do that by
thinking of new forms of housing and really changing
our zoning. Home ownership is a
catalyst for building wealth with the added benefit of
providing safer neighborhoods for families
and better schools for kids. But not everyone can afford
to own a home. That's why the homeownership
solution is a solution. Even now for many
households. The problem is getting into
homeownership. In the first quarter of
2021, the homeownership rate in the US was 65.6%,
according to the US census. The homeownership rate for
white Americans in the U.S. is almost 74%, compared to
49% for Hispanic Americans and 45% for black
Americans. A major hurdle for many is
the down payment. Typically, homebuyers put
20% down when taking out a conventional mortgage. We know that that typically
also requires having a certain amount of income. And for a lot of people,
that is much easier said than done. For example, for
people of color, it is much harder to be able to put
down that type of down payment because they may
not have. The familiar support. As people who come from more
affluent neighborhoods. These gaps are exceedingly
troubling because the implications of them are
very pervasive. Black household wealth is
1/10, but it is for white households, and a big large
portion of that gap is due to the lack of home
ownership. Even though mortgage rates
are at historic lows, the there's been a ratcheting
up of the qualifications that are required to borrow
to become a homeowner, and that has impacted minority
households more than majority households. Buyers paying less than a
20% down payment are often subject to primary mortgage
insurance that can range from an additional 30 to
$70 per month for every $100,000 borrowed,
according to Zillow. Student debt is another
barrier for many first time homebuyers face. According to the National
Association of Realtors, the average home buyer in 2020
can. $30,000 in student debt. When I talk to young people,
a lot of. Times they are trying to pay
their rent versus their grocery or they're trying
to pay their. Student loans. Single family zoning,
pervasive across much of the US, limits the number of
units that can be built on a plot of land, making it
difficult for families to afford certain communities. Single family zoning has
really been a barrier from lower to moderate income
people to. Be able to live in
particular neighborhoods because single family
zoning bans, any type of home being built or any
type of multifamily home or any type of detached home
from being built, which is a huge barrier to people who
are just trying. To start off. But that might be starting
to change. In 2019, Oregon became the
first state to pass legislation banning single
family zoning in most of the state. Around the same
time, Minneapolis became the first big American city to
end the practice. So one of the major
impediments to our shortage of housing, in addition to
the land economics and the supply chain, is that we
have a lot of communities in this country that don't
want to have affordable housing. They don't want to
have anything other than large suburban estates, if
you will. And I think we need greater
exercise of federal policy over these local
communities that are utilizing exclusionary
zoning to really grossly impact the provision of
affordable housing. The federal government is
taking steps to increase affordable housing, too. In April 2021, the Biden
administration announced a $5 billion plan providing
financial incentives to push local governments to allow
multifamily dwellings in neighborhoods that are
currently restricted to single family homes. This is a market for
housing, for home ownership, for those who wish to get
into homeownership and those who are homeowners. People are expanding their
homes or renovating their homes. They're building out
new backyards. So this is a home owner's
economy. There's never been a
stronger economy for homeowners than now and as
a contribution to the overall economy. Homeownership is more
important than ever. Between remote work and the
pandemic, more people and businesses are moving to
the suburbs. The decarbonization trend,
that's a real thing. People are moving out of
the city. They're buying bigger
houses. We have seen that the
housing market was incredible in 2021. The pandemic itself, it has
changed housing preferences and location preferences. America leads the world in
suburbanization. I think the U.S. is
distinctive in that. Suburbanization has been
particularly large in magnitude here in the
United. States, and it's creeping up
again, of course. But there's an opportunity
here to rethink some of those patterns and reset
the norm. I think the way the suburbs
were built was a big mistake. The cities needed
to get bigger, but they should have been built very
differently. To combat the economic
challenges of sprawl. Some suburbs are building
up rather than out. Where we build housing,
where we don't build housing, and what kinds of
housing we build have big implications for the
economy, for climate, and for patterns of racial and
economic segregation. The roads and the sprawling
suburbs contribute to the nation's $1.2 trillion
maintenance funding gap. How else the suburban
sprawl shape the US economy? Over centuries, developers
built mini homes in a pattern that experts call
suburban sprawl. The farther out you go from
the center of the city, we tend to build lower
buildings, shorter buildings, more spread out
and more space. It gives a little bit more
of the illusion that you live off in the country,
far away from other people. This style of housing is the
foundation of the American suburb and the American
dream. The one thing it does enable
people is to kind of escape the city. So there is a
benefit and a cost and individuals are deciding
based on their private benefits and costs and
making a decision they think is optimal. Sometimes that
can have negative externalities for the rest
of society. The New Deal of the 1930s
sped up suburban sprawl in the States. The bill
created a Federal Housing Administration which
standardized neighborhood design. It made mortgages
more affordable. And Fairless Hills is
typical of the growing new community. The FHA guidelines made
country style living a middle class reality. They also created problems. They prescribed rules to get
an FHA loan. No sidewalks, curvy
streets. Dead end streets and made it
hard to walk. They also enforce a minimum
lot size, which spreads people out and inflates the
scale of the suburbs. If that's an expensive
community with expensive land. It means that the
price of buying into the community is going to be
very high. That means automatically
the only people who can afford to move in there now
are people who are pretty wealthy. A large minimum
lot size doesn't say no black people or no Latinos
can move into the neighborhood. But it turns
out that income and wealth are really strongly
correlated with race, in part because of
longstanding discrimination. Many suburban towns also
separate land by use. As a result, homes are
generally far away from industrial and commercial
areas. Local governments adopt this
so that they have some control over what gets
built where. But it also can make it
difficult to build the housing that people want to
live in, in places they want to live. These guidelines were
formalized with zoning laws. These are sets of
regulations. There are subdivision codes, as well
as just regular zoning codes that exist in most
municipalities across North America that provide a
framework for what you can and can't build. And these
are used as planning tools. Restrictive zoning codes
have long limited the supply of land for housing in
cities like Minneapolis and San Francisco. Many workers in these
cities haven't been able to buy or even rent homes near
their jobs, which slows economic development. These old trends are still
shaping development today. It was in the 1940s when the
United States population crossed that threshold from
being predominantly rural to predominantly urban. And all of the growth since
then has really been a shift from rural to suburb. And since the 1960s, people
have been trying to. Modify the zoning to let
people. Mix uses and have stores,
apartments. Offices, all mixed together. Which is what lets you. Have these sort of lively
neighborhoods. In recent years,
neighborhoods outside of cities with large job
markets have boomed while the population in America's
heartland declines. As a result, the
maintenance costs associated with suburbia are adding
up. When a suburb grows, the
tax base within the nearby city is expected to
decline. Which reduces its ability to
fund local public goods, including schools,
including policing and so on. And so those individual
decisions, even though they can be good at the
individual level, can have externalities for the city
as a whole. So the spread out
development that's typical of the suburbs, it entails
higher per capita on government costs relative
to the denser urban areas. If you're building roads and
sewers and all of the houses are located half a mile or
a mile away from one another, you need more
asphalt and more concrete and more pipes. Suburban towns often
struggle to finance their long term infrastructure
costs. And population growth
nationwide has slowed to 0.1%, a record low. That means that the
financial pressure on suburban towns is mounting. All of the declining cities
in the Midwest face this problem that they just
don't have the income from their current tax base to
pay to maintain something that they built 50 years
ago when they were three times the size. So new, so powerful, so
revolutionary is this force that we have hardly been
able to appraise its influence. Federal spending can hide
the true cost of suburbia. Local governments use
property taxes in particular to pay for a lot of these
costs. So if you've ever wondered
why do we have potholes on your neighborhood street
and not potholes on the interstate is because
they're paid for by different levels of
government. America has a $1.2 trillion
funding gap for upkeep of roads, bridges and tunnels. The American Society of
Civil Engineers says new spending in 2021
infrastructure bill helps, but it doesn't cover the
full costs. If further improvements
aren't made, the country's failing infrastructure
could cost each family over three. Thousand dollars a
year by 2039. Another problem. People don't realize how
much of their income goes. To their car. In the past,
the suburbs became more popular as cars fell in
cost. To take account of
inflation. And once you take account of the rise in
people's incomes, the real cost of car ownership today
is lower than it was. Of course, if you get a
frontier car such as a Tesla, which has features
which weren't available in the 1950s, you can pay a
lot of money and it can be very expensive. Since the 1990s, households
have increasingly relied on credit to finance their
cars. Triple A says the annual
cost of vehicle ownership has risen to nearly
$10,000. Making matters worse, the
2008 recession has destabilized many suburban
households. On average, people in the
suburbs are now employed at lower rates and have
declining incomes. Home prices have also been
subdued when compared to central cities. Some call
it the suburbanization of poverty. There's typically a greater
availability of land in the exurbs and the land and
housing that's on it also tend to be more affordable. Experts say remote work and
tasteful planning could make the suburbs better. New growth and density could
be directed through redevelopment and infill
projects. There are so many of these
surplus properties out there. Many of these infill
projects place residents closer to commercial areas,
which could create opportunities for
entrepreneurs. If we focus on millennials,
for example, they have things that they really
like. They have bars, restaurants, so some of
those preferences they carry with them. And so what that
creates, it creates opportunities for someone
to open up a business that caters to these needs. And I think that sort of
plays a big role in that shift of employment to the
suburbs. Experts say the most
affordable suburbs are often also the least sustainable. So, for instance, a metro
like Atlanta or Phenix has managed to keep housing
fairly inexpensive over the last 30 years because they
just build a lot of housing and they build these huge
subdivisions 10,000, 20,000 homes on very inexpensive
land. That's essentially, you
know, farmland that's undisturbed. On the flip
side, of course, we know that there are terrible
climate impacts from building. So there really
is a tension. Then you can see that very
clearly in California. You see how close those
flames are to these houses. Home prices in the large
urban metropolitan areas were so expensive that
people started moving out, moving into the more wooded
areas. And then you see these
wildfires and they're not going away. In fact,
they're getting much worse. Meanwhile, suburban drivers
on belt ways are shaping the climate of the future. It's really in the kinds of
suburban settings that we would characterize as
sprawling, separated, uses, car dependent, relatively
low density. This is where we see a more
extreme emissions use. Most U.S. emissions come
from personal cars. Commutes lengthened as the
country sprawled in recent decades. So going back to 1970,
around 81% of residents lived in the county where
they worked, and that declined substantially over
time by the year 2000. If remote work persists, it
could take some drivers off the road. Home appliances
are another huge source of emissions. Definitely, when you see
more sprawl in the suburbs, you're seeing much more
carbon emissions out there than you would in one large
building in a city. The U.S. has committed to
eliminating carbon emissions from electricity by 2035,
but in that time period, researchers expect U.S. auto emissions to remain
flat. That's mostly due to
suburban drivers. But there's an opportunity
here to rethink some of those those patterns and
and reset the norm. So what can be done to
improve residential development in the states? Many regions are tackling
sprawl head on. In Montgomery County,
Maryland, outside of Washington, D.C., 85% of
the available land has already been developed. The county revised its
master zoning code to increase the supply of
homes along a forthcoming light rail path. This is a suburb to suburb
rail line. You see them in other
countries. Paris has an enormous project underway,
but for the. United States. It is really one of a kind. Leaders hope the
improvements will take 17,000 daily drivers off of
suburban roads. Experts say that expanding
public transit can make a community more equitable. Traditionally, lower income
communities have benefited disproportionately from
from public transit options. But funding and executing
such projects is a feat. Residents are paying for
the $9 billion suburban D.C. rail project with an
increased tax on gasoline. President Biden's economic
council wants to encourage more changes like this. They have called for a $5
billion grant program to fund communities that
abolish restrictive zoning codes. One thing to remember is
that every part of the country has some walkable,
mixed use places that feel like sort of a. In Street. And we don't have to invent
this for real. We've already done this.
Just recreate what we used to do. And so that's where
we are now that the kinds of beautiful, scenic, small
towns mixed use, walkable streets that we remember
and we like to visit as tourists. Preexisting
zoning codes and in many cases could not be rebuilt
again if you wanted to do it from scratch without
significantly revising the zoning. Other parts of the world are
experimenting with zoning reform too. There's been some very
interesting work in the city of Bogota documenting how a
rapid bus transit network had uneven effects on low
and high income workers in that city. Another study found that
changes to the code in Sao Paulo, Brazil, improve the
quality of life for renters with college degrees. But those changes also
greatly sank home prices affecting landlords in
America. Homebuilder stocks have
wavered as the Fed weighs interest rate hikes. A rising rate environment is
going to be very difficult for home buyers. Just takes
away from potential buyers purchasing powers. It means
they either can't buy a home or they can buy less of a
home. And we know that the entry
level housing stock is the leanest it has ever been. Suburban sprawl will
determine much about the American economy for the
foreseeable future. The development choices
made today last for generations. So it seems as though over. The medium. Term the deck is basically
stacked in favor of the suburbs and against the
dense urban cores. Ultimately, people are
making those decisions for a reason and it reflects a
very kind of fundamental economic force that you see
in many places around the world, in many different
institutional settings. You know, it took really 50
or 75 years. To make the problems. Of the suburbs, and it takes
a long time to undo it. Rent in America is getting
more expensive no matter where you live. Rent growth is. Accelerated coast to coast
in big cities, rural areas, east, west, south, north is
across the entire economy. The areas where we are
seeing the strongest rent growth are in places like
Austin, Texas. Yes, my name is Maria and I
live in Austin, Texas. During the pandemic, a lot
of people began to leave and actually the rent dropped
that year by $100. I am due to renew my rent
and there was a spike of $400. Making matters worse. Few of the new homes in
construction are affordable. Rental demand continues to
be extremely strong, and the rental units that are being
built are the more expensive ones. That is the higher
end ones. Meanwhile, workers pay isn't
increasing enough to match the new rent. We had wage depression for
40 years and then we have the period now where wages
are growing, especially at the low end. And so the
question is how long will that continue? Experts say the rent
increases will have an impact on the economy. A lot of the monthly expense
for the typical household is money that's going toward
the rent or to upkeep of the house. So it is a very
important part of all of consumer expenditures. In the most competitive
markets. Rents are creeping toward
record highs. Renters in smaller markets
are feeling the squeeze, too. For example, one
bedroom rentals in Gilbert, Arizona, spiked over 116%
in the past year. Meanwhile, rent for a
single family home is growing at its fastest pace
since 2005, according to CoreLogic. So how did we
get here? One answer is the bounce
back from the pandemic. You saw tech companies,
major firms moving to smaller cities, cities like
Pittsburgh, Boston, San Antonio, Charlotte. These are cities that
really started booming because workers had more
flexibility. And when the city starts
booming, of course, the rents go up because it's a
supply and demand issue. But the story goes back
further than that, all the way back to the Great
Recession. President Obama, are you
listening? This has been building
really since the end of the financial crisis back a
little over a decade ago. A lot of communities have
made it. More difficult. To build more homes closer
to the urban corners. Building materials,
particularly lumber, has been in short supply. That's been a problem. Labor know a lot of people
left. The construction trades in
the housing bust back. A decade ago and because. Of the changes in foreign
immigration laws, we have a lot fewer foreign
immigrants coming into the country. Many of those
folks would work in the construction trades. Also,
a lot of smaller builders, they rely on loans from
banks. And since the financial
crisis, banks, particularly smaller banks, mid-size
banks, have been unable to because of regulatory
changes and other reasons, unable. To. To provide enough loans. So there's a mélange of
things going on here. After the financial crash of
2008, house building stalled by the end of the tends. Renters had fewer options,
especially in real estate hotspots. Pre-covid, we saw a huge
rush to urban centers. Millennials love to live in
cities longer. They were actually living
there longer than the previous generations their
age had because they weren't able to get out and afford
to buy homes because home prices were so high. So you had so much demand
in the cities. Then the pandemic. Hit. So if you look at some
of the high rise apartment buildings in the really
dense central business districts, the big cities,
rents were actually declining in the first 12
months of the pandemic. But smaller cities like
Phenix and Austin received more of those remote
workers that sent prices upward for people like
Maria. Right now, I would say for a
studio is probably $2,000. But this place, it's a one
bedroom, was originally set at 1700 when I first moved
in. Maria is a teacher and needs
to commute to work every day. She and many other
Americans don't have the luxury to move further away
from work to save cash. That's creating wider
issues in the economy. There's a lot of evidence
that the lack of housing closer to where the demand
is in urban cores is having a meaningful negative
consequence on long term economic growth. So if we
can figure out a way to change zoning rules and
laws and get the lumber and land and and labor that we
need and able to build closer to where the jobs
are, you know, our economy will be able to grow more
quickly, more strongly in the longer run. Renters in the traditionally
cheaper suburbs are feeling the Bern, too. Economists
say that finding any home to rent right now is uniquely
difficult. Because the vacancy rates
are really so low. It's the lowest we've seen
in a generation. Coming out of the pandemic,
it's likely for rents to keep rising. Fortunately, builders are
ramping up their building. They can make a lot of
money with rents this high and house prices this high,
so they have a lot of incentive to put up more
homes. And that's happening slowly
but surely. We are seeing more homes
put up. So that's a good sign. And we've seen an increase
in single family housing starts. That's really
important because that's the preferred housing structure
during the pandemic. So having investors come
in, buying homes might maybe puts a little upward
pressure on home prices. Sure, maybe it does. But it does increase the
stock of single family rental homes available in
the market and should help to moderate rent growth. And in the cities, some
realtors are weighing whether to convert their
less busy office districts into residential
neighborhoods. The ideal is to say that
there are some empty buildings, you know, brick
and mortars already established, but maybe one
can repurpose it into residential units. For the short term, renters
are dealing with the market. If I had signed the lease, I
would have it would be taking a lot of my savings. And so I decided to move to
a new building. I'm losing about 150 square
feet. These hikes are hitting U.S. citizens at an inopportune
time. Over decades, wages for
most workers have stagnated. The wages and benefits of a
typical worker were suppressed in the period
for decades. After 1979, growth was very
slow. There was growing
inequality that worked against the middle and
affect against anybody in the bottom 90% in 2019. Oregon became the first
state to impose statewide rent control. They cap
increases at about 7%. Cities like New York, San
Francisco and Washington, D.C. also limit rent
increases. These policies have some
benefits. One study found that
renters were about 20% more likely to stay in their
homes with rent control. Other economists think that
rent control does more harm than good. So what history has shown is
that by putting a rent control, yes, it's benefit
temporarily for people to pay lower rent. But that deters incentive
to build more homes or provide money for
maintenance. So all the housing stock steadily
deteriorates over time and one does not want to see
that. So we want to encourage more production. The answer to rising rents
may be in the job market. Both Congress and the Fed
have pumped stimulus into the economy. It should
eventually help some workers earn higher wages. There's been a huge increase
in the demand for goods and services, so we're going to
see a period of sustained, low unemployment. I think
this has always led to faster wage growth for
those in the middle and the bottom. The other related
question is, will we see the structural changes that
will build this into the economy rather than be an
episode of a period of low unemployment? And I think
that will require improving labor standards, putting in
the $15 minimum wage, rebuilding, collective
bargaining. I think it will mean paying attention to
maintaining low unemployment. Which means that the answer
to rising rents might be getting yourself a raise or
finding roommates. They're not building enough
affordable housing right now because for builders, the
cost of construction is so high due to high costs for
land labor, materials shortages for materials,
shortages of labor that they can't build affordable
housing. You know, it took us ten
years to get into this predicament. It's not going
to be solved next year or the year after. It's it's
going to be ten years before we solve this problem. Some big numbers coming out
of the housing market today, and they're not looking
pretty if you're looking to buy or rent. It's all
getting even more expensive. Home prices in the US have
climbed at a record pace during the pandemic. The median home price
reached over $363,000 in June 2021, a 23.4% increase
from 2020. Many of these houses are
being sold above their asking price, often
entirely in cash, with bidding wars becoming the
new norm to weed out the competition. At the
beginning of the pandemic, the Fed cut interest rates
to zero and that dropped mortgage rates to
historical lows. And as soon as people
figured out how to buy a home in a safe manner with
like social distancing, people came right back to
the housing market. So you can see in just
basically the last 15 months or so, we've seen a
dramatic acceleration in home price growth to levels
we haven't seen in decades. How hot is it? It's turning
cold. Existing home sales falling
in March, but at least in part because there just
aren't enough homes to buy. While the market has cooled
down considerably in June compared to its peak, fears
of a housing bubble are becoming prevalent among
many homeowners. I think it was sticker
shock. I think a lot of people got
in there and said, I just can't afford this. And
that's why home sales came down. Almost every conversation
that I've had over the past decade is, well, one,
there's this fear that we might find ourselves in
another crash, and buyers don't want to be the ones
holding the bag in the middle of that transition
of a shifting market. If a housing bubble were to
happen, it would mean that a very large portion of
Americans wealth are tied up in risky assets, and they
could lose a lot of their wealth as soon as those
home prices drop. So is America currently in
another housing bubble, and what are the signs that can
help investors predict an oncoming crash? A housing bubble occurs
when strong demand and wild speculation drive up the
price of residential real estate to the point of
collapse. If it's hard to like look at any one data
indicator to know whether we're in a housing bubble
or not. The signs that I would look
for are actually more intangible kind of a
mindset that people start to adopt. If people go into
buying a home thinking that they're going to get this
instant return. And you see a lot of
speculators in the market bidding up prices, if you
see a lot of people or homebuyers buying homes
with no money down or very little money down, those
are some telltale signs. If you see credit too easy,
then that's a that can be a telltale sign as well. If a bubble is left
unchecked, supply will continue to rise in order
to meet the strong demand, and prices will climb
beyond a reasonable amount. When demand suddenly and
unexpectedly decreases, it leads to a sharp decline in
housing prices. Bursting the bubble. Housing bubbles eventually
pop because people start to realize that what's going
on isn't sustainable. As soon as people see their
neighbor selling their home and maybe their neighbor
accepts a little bit less than what homes were worth
when they bought, then they may start to get nervous
and sell as well. And then it becomes like a
cascade. Bubbles tend to burst pretty quickly. So that's why one day you
might have your home go down in value like 20% because
the bubble burst. But sometimes the market
requires a more drastic incident to crash on a
national level. Catastrophic economic
events. That's it. You need a
catastrophic economic event to make a housing bubble
pop. You can definitely have a
pullback in the heat in the housing market. But to
really have that market crash, there needs to be
that event. There have been numerous
housing bubbles throughout history, going back as
early as 1837 compared to other equity busts that
occur on average every 13 years. It's far less
frequent. However, the International
Monetary Fund discovered that housing crashes
usually lasts nearly twice as long, with output losses
that are nearly twice as large, leaving a much more
detrimental impact on the economy. The 2008 financial
crisis is a prime example of how a real estate bubble
could potentially contribute to an economic meltdown. A lot of people got it
firsthand experience and what it's like to see your
home go down in value. Some people end up losing
their homes if they weren't able to continue making
their mortgage payments and then they couldn't sell at
a higher value than what they bought it for. So they
don't end up having to take the loss themselves or end
up in foreclosure. So all of that can be very
damaging to people. And I think it's very
understandable that people are concerned about that
happening again. Demand off the charts. Price is rising at the
fastest pace in 15 years. But is the market too hot? Is it overheating a bubble,
as they say? So. Is the recent real
estate rush a sign of a housing bubble? According
to most experts, the market is shaping up to look more
like a boom rather than a bubble. I know. Expect that we're
going to see a house price crash. I don't think we're
in a bubble. We say bubble because we
can't believe how much prices have gone up. But really, a bubble tends
to be something that's inflated that could burst
at any minute and change. And that's not really the
case here. While speculation certainly
is a factor, the main cause for today's demand is in
the low mortgage rates. At the start of the
pandemic in March 2020, the 30 year fixed rate mortgage
sat at 3.45%. In July 2021, that number
had dropped to 2.87%. We've got 30 year fixed rate
mortgage rates for much of the last several months
below 3%. That's a phenomenal rate. It's rock bottom. It's a record low. I don't see them going any
lower, but that is one of the reasons why that has
led to this pickup in demand to buy homes and has added
the fuel necessary to push home prices up. Supply is also an issue. According to the National
Association of Realtors. The US has under built its
housing needs by at least 5.5 million units over the
past 20 years. That's a stark comparison
to the previous housing bubble in 2008, when
overbuilding was the issue. In my town, which is
Marblehead, Massachusetts. As of this morning, we had
17 single family homes on the market. 17. So in some of. And that's not even
considered bad. Some of the surrounding
towns, the town next door, they had five single family
homes. So we've got really the
demand and supply forces coming together. We've got
a boost in demand that's fueled by record low
mortgage rates and we've got a shrinkage of supply as
many of the older homeowners decided to postpone listing
their home for. Sale and wait until a later
date. When the pandemic was in
the history books. So between more demand,
less supply. Prices are up and they're
up at the fastest pace since the 1970s. There also haven't been any
signs of a lending bubble, which is often associated
with housing busts. Most of the new mortgages
today are fixed rate compared to the riskier
adjustable rate mortgages in the past. Subprime loans. Are those
loans made to borrowers or to applicants who have
very, very low credit scores? Those are gone from
the marketplace. What's also gone are the
liar loans. Just about all of the
mortgages today are fully documented. Documenting
income, documenting employment, documenting
financial assets so that both the borrower and the
lender have some assurance that the borrower has the
financial capability to manage that mortgage loan
over time. Furthermore, rapidly rising
home prices saw a correction in June 2021 after sales of
newly built homes dropped to the lowest level since the
early days of the pandemic in April 2020. I think it was sticker
shock. I think a lot of people got
in there and said, I just can't afford this. And
that's why home sales came down. We did see some more
supply come onto the market and that's helpful. And that's a lot of sellers
saying, Well, if this is the height of the market, I
want to get in now. But again, they're not
going to get that top dollar if people can't afford it. So I think we're at kind of
a turning point as in the housing market is cooling
down on sales, but prices may stay elevated if we
don't get enough supply in there to meet the current
demand, which does still exist. The US might be safe
from a housing bubble at the moment, but that doesn't
mean another crash will never happen again. But there are certain
indicators that could signal danger on the horizon would
be unusual. Where you should fear about
home prices really starting to plummet is if you look
around and you see all this new construction in your
neighborhood and yet home prices aren't moderating at
all despite there being all this added inventory. If you see a whole lot of
flips, a lot of investors coming in, you know, doing
modest improvements to the home and then getting a
whole lot more than they put in when they end up
selling. That would be a sign that
the housing market is starting to look a little
bit unhealthy while the thought of another crash is
certainly scary. Experts say that a real
estate crash, similar to the one during the 2008
financial crisis, is unlikely to occur again. The market today is not in
danger of a housing bubble bursting because everyone
out there who owns a home has a mortgage that was
underwritten responsibly. Some of those changes were
due to the Dodd-Frank Act, which also created the
Consumer Financial Protection Bureau. And through some of the
regulations that have been promulgated, that is really
assured that mortgages are underwritten in a prudent
fashion and provide for mortgages that can lead to
sustainable home ownership for the home buyer over
time. But for both current and
potential homeowners that remain worried, there are
certain measures that can be taken to lessen the risk. If you're a homebuyer today
and you're concerned that prices are overheating and
you're buying at the top of the market. The most
important thing you should do is not overpay for your
house. If you feel the price is
higher than what you're comfortable with, higher
than what you think the true economic value of the home
is, then step back from it. You don't need to buy. Now, the mindset that I
would encourage homeowners to have is a very long term
mindset. Like it doesn't really
matter if home values go down for a couple of years
if you're going to hold and not sell for a decade. So I would just keep your
eye on the long term goals, make sure that you have
enough savings that you could keep paying your
mortgage payment even if you lost a job, even if you
lost some income. So you can ride out any
temporary dip in the housing market.
This seems to be the right kind of content for this sub. It feels like the CNBC researchers watched the Not Just Bikes channel. They talk about sprawl, suburbs, the maintenance gap, and building up.
In most areas its so expensive to buy because of supply crunch from various reasons starting all the way back in 2006. In most areas its so expensive to rent because of price fixing.