We Need More Houses
The coast to coast home shortage
Last week our neighbors put their house up for sale and I got a front row seat into what’s going on with the real estate market.
We live at the dead end of a subdivision out in the country. We hardly ever have any traffic. But I had noticed a steady stream of cars driving by last Friday. Then I remembered that our neighbors were going to be listing their house. I checked online and it was now listed. No pictures yet and it said new, 31 minutes ago. That’s all it took to create a parade for a few days.
Within the hour there were showings non-stop the rest of the day. That continued the next day, Saturday. All day long there were showings. People were lined up outside to go in. Realtors were even outside doing showings virtually. At night there were cars shining their lights to see the house. On Sunday, it was the same thing. Out of state license plates were even making the trip.
It was astounding the number of people that stopped to walk through the home. That’s the most people I have seen in our subdivision. Keep in mind this is during February in Wisconsin. We just had three inches of snow along with single digit temperatures. Didn’t matter.
The home was listed on a Friday, and on Sunday it already had an accepted offer. They came Monday to put the realtor’s sign in the yard. The house was sold before they even got the sign in the ground. Think about that.
Now this was a larger sized home on an over acre lot, in a desirable neighborhood. It was priced accordingly. Not the type home that you’d expect to sell within a weekend. It still sold for 10% over the asking price.
If you check your city’s homes for sale, you’ll quickly realize that there are hardly any homes for sale. Housing inventory listed for sale has reached a new low point.
We’re in the midst of a severe housing supply shortage. Yes, another supply and demand story in 2022. The country is underbuilt and needs more new homes built. It’s even more relevant now because there are more people in the United States today, than any other time in history. As you can see in the chart below, new housing starts are way below where they should be.
This demand has driven up prices. The median sales price of homes sold has risen 13.7% from a year ago to $408,100. Ten years ago the median sales price was $221,100.
As you can see new homes sold for $200,000 and below has become extinct. The price tag of $300,000 and below is slowly fading away as well.
Many are pointing to what this is doing to home affordability and that people must be taking on a higher mortgage debt relative to their income. That the country is at another housing crash point. But that’s not the case. In fact, the mortgage debt payments as a percentage of disposable income has decreased substantially to all time lows, as the chart below illustrates.
We are seeing competition that’s going to continue and probably accelerate with spring coming and a large unmet demand by people who want homes. Mortgage rates are creeping higher, but that isn’t going to have a big effect due to the size of the demand. Demand this large just doesn’t end.
The real challenge is how does the country get more homes built. There are only so many homes. Bringing more supply on comes in constructing new homes. Until this changes odds are demand and pricing doesn’t comes down.
Housing has turned into a form of auction. The list price is the starting bid and then it becomes a silent auction. Whoever tosses in the highest bid gets the house. I’ve seen realtors cold-calling and going door to door asking if people would be willing to sell their homes in our neighborhood. It’s probably happening in your community as well. This is the new real estate market and don’t expect it to change anytime soon.
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