Over the last couple of months I began looking at houses in Florida. (I turned 60 in January so I think I’m just following a rule that says I have to do this.)
I had 25 or so homes saved on realtor.com. A week later I showed them to my wife. Half were sold! Weeks followed and the pattern continued. Find a few houses, see them listed as pending before I knew it.
Last week in Rhode Island there were fewer than 1,000 single family homes for sale not under contract. There are over 5,000 licensed real estate agents in the state! That should give you some context of the problem. So why is this? Let’s take a look at some factors.
1. We didn’t (and don’t) build enough.
From 2008 onward we simply didn’t build enough homes to keep up with the natural demise of older homes or the needs of a growing population. Why? Well that gets interesting. In some states, environmental limitations on land use (think California) stifle building opportunity.
In other areas, cities and towns have annual education costs that exceed $15,000 per student. A family has two school-aged kids and that’s $30K. Yet, the real estate taxes payable to the city are a mere fraction of that cost (around $5,000 in most communities.). The city is upside down. The last thing they can afford is new middle-income home building. So they don’t do it.
Big houses are OK, those folks send their kids to private schools. Over 55 developments are fine, those people are largely done with school.
2. We have a lot of 30–33-year-olds.
As Barry Habib of MBS Highway has been telling us since 2016, we have the largest population of 30–33-year old’s the country has seen in generations. Guess what the average age of a homebuyer is? Yeah, you guessed it. 30-33. We have a lot of potential buyers.
3. Renting is expensive!
Average rents have increased 4% a year since the housing crisis. Do the math. It costs more to rent than to buy in many places.
As we say, “Everyone is paying a mortgage. Might as well be your own.”
4. Rates are low.
The lower the rate, the lower the mortgage payment. The lower the payment, the less income you need to qualify. At higher rates you need an income of, say, $65K a year to buy. When rates are really low, you need $50K to buy. That increases the pool of qualified people by A LOT.
5. There’s no inventory.
You heard that right. There’s no inventory because there’s no inventory. Look at it this way: for a house to go on the market the sellers need somewhere to go. The scariest thing is not about getting your price, it's about not having a place to go once you do!
Look at it this way: most people get the itch to sell because they see a house they love, come for sale. Well, right now they aren’t coming available and when they are, they’re gone in days, maybe even hours.
Naturally, there are other reasons for the inventory scarcity but these are the main ones. Don’t get frustrated. Just leave yourself a wide window of time, expand your geography a bit and maybe pray for higher interest rates. No, no, don’t’ do that last one.
BTW, I did a huddle earlier this week that was watched and enjoyed by literally single digits of people, so I thought you might like to see it too. It’s about what happens when you give anonymously. Hope you can watch it and make me feel better about myself. Watch it here."
Orignally posted June 19, 2020
Posted by Shamrock Home Loans on