The Unaffordable US Housing Market

07/11/2022

This has been instinct since the mid 2010s, and now quite obviously a problem: affording a house in America has reached another unsustainable point in time.

Look around to any market today - NYC, LA, Miami, Nashville, Cincinnati, Tulsa, Knoxville - no matter the “tier” of city, location, amenities, or economy, buying a home in America is increasingly a challenge.

Are inflation and interest rates part of the issue? Sure…but those are latecomers to the party. Some@more interesting trends imo:

- after the real estate crash of 2008, developers stopped building, which squeezed housing stock even more and kept prices “in the chamber” so to speak, ready to fire back up

- free money kept demand high as Americans saw the availability of cheap loans continue…while institutions with cash bought whole swaths of properties from low income in Tampa and Jacksonville to trophy in DC and SF

- supply of homes was still well short of demand when covid hit in 2020…and while developers once again stood back from developing new homes, families changed their mentality to creating more permanent living styles by adding pools and other amenities - a sign that existing home stocks would also take a hit

- the movement of coastal money and people to the middle pushed markets like Knoxville (3-5% appreciation per month in 2021) to new levels of attraction AND in turn created favorable rent conditions for property owners

- 2022 has so far been typified by institutional money once again buying supply with a rent-taking strategy - drive up rents and create more operating cash against a long game of holding property long term

- the average US citizen has saved a lot during the pandemic, and hiring has been pretty strong, but wages are still totally out of line with inflation of goods and home prices

So here we are all over again, waiting for the other shoe to drop, inevitably. And this one is going to hurt in a different way. Home equity is family wealth. Inflated goods is cash out. Everything is more expensive…and the last remaining market to avoid a correction looks poised for one.