According to Michael Simonsen, the co-founder and CEO of Altos Research, there are 5 top reasons for the U.S Housing Shortage. We want to touch on those today.
How Did We Get Here?
Before we blame it all on 2020 and Covid-19, we actually started last year with a record housing shortage. Before a virus impacted our lives. In fact, this has been, according to Simonsen, a decade in the making.
- Low-Interest Rates
When rates are low, money on loans is cheaper. It become inexpensive to keep your current home as rental opportunity and purchase another new home to live in. It is actually cheaper now to buy a more expensive home at a lower interest rate than a few years ago with 5% interest – your payment will be lower. WOW. When rates stay low, this will continue on, and according to the federal government, their intent is to keep the rates low through 2023.
- Buy Low, Keep Forever
As mentioned before, money is cheaper and it is a more affordable option to purchase income properties. AirBnB, VRBO, and other rental companies are increasingly popular options for travelers, and a great option of side-income for you!
After the housing market crash in 2008, homebuilders started building about 1/2 of the amount of homes needed. This was okay for awhile because of foreclosures and empty homes, however, after 12 years of this, the limited growth of the housing supply has led to an ironic twist: sellers are afraid to list because there may be nothing to buy! The cycle continues to perpetuated. There is also the current challenge of a lack of skilled laborers, increased lot pricing, and construction materials have reached a square-food all time high
We are well into the millennial era, with more of this generation than any other, and they are coming into their peak years for earning and home-buying. People are also staying longer in homes, for an average of almost 10 years.
- Homeowner focused policy
Due to Covid-19, the CARES act has kept some properties that would have gone to the market in the hands of distressed owners. The foreclosure pipeline was at record lows before the pandemic, and average homeowners have gained around $26k of equity in their home. That means that pandemic-distressed homeowners seem highly unlikely to add to housing inventory soon. There are still 2.5 MILLION homeowners in the mortgage forbearance program, but people only default on a loan when the deal is not worth saving, or they are upside down on value – which is very rare this time around.
So how do we help emerge from the crisis? The most important factor is mortgage rates. As rates continue to slowly rise it’s around the 3.5% rate that consumers start feeling a little pinch of higher payments. When the rates hit this percentage then this will start to change what people buy, sell or hold onto as they prepare to move. We also will see a change when new construction continues to climb. This will be vital for boomers to move into retirement and millennials getting into their first homes.