I’ve been fascinated with the housing market since the start of the pandemic.
Some people think it’s a bubble because prices are rising so fast but there are so many other variables at play that I’d label it unhealthy rather than euphoric.
I was listening to homebuilder Lennar’s quarterly earnings call on Quartr last week and pulled this clip from CEO Stuart Miller:
He said it’s taking 6-8 weeks longer to build a house right now for a variety of reasons:
While demand is strong, supply is short and constrained, the ability to actually build and deliver homes has been slowed by the supply chain that is all but broken, by the workforce that is short in supply, and the intense competition for scarce and titled land assets.
Unfortunately, even if we wanted to build more houses right now, it’s basically impossible with all of the supply chain issues and worker shortages.
The supply chain is all but broken and maybe the housing market is too.
Here are some data points from the latest Redfin housing market update:
- The U.S. median home sale price surged 7% during the four-week period ending March 13. That’s 7% in 4 weeks!
- With mortgage rates now above 4% and prices skyrocketing, the average monthly payment on the median home sale price is now $2,120. That’s $530 more a month than pre-pandemic levels.
- Nearly 60% of houses that went under contract had an offer accepted within the first two weeks after it was listed. Almost half of all homes had an offer accepted within a week. That’s an all-time high.
- 48% of all houses sold went for more than the listing price.
I’ve gone over the reasons for this in the past:
- Millennials are in their prime household formation years.
- We didn’t build enough houses following the Great Financial Crisis.
- Supply remains at historic lows.
- Generationally low mortgage rates (until recently).
Add in the remote work trend and pandemic-induced exodus from some expensive areas of the country and you get one of the craziest housing markets ever.
Housing prices were so strong last year that many homeowners made more on their home than they did from their job. This is from a Zillow report (via the WSJ):
Zillow Group Inc.’s home value index, which estimates the value of the typical U.S. home, rose 19.6% in 2021 to $321,634, an increase of $52,667 from 2020. That figure was slightly higher than what the median U.S. full-time worker earned, which was about $50,000 last year before taxes, according to Census Bureau data cited by Zillow.
That’s the first time the gains in the median value of a home have exceeded the median income levels. Now look at an extreme market like San Diego:
In San Diego, for example, the typical home gained about $160,000 in value last year, while the typical worker earned about $55,000, Zillow said.
This feels like a once-in-a-lifetime shift in housing prices that is going to make those who own a home much wealthier and those who want to own a home in a much tougher spot.
Inequality in homeownership has likely never been greater.
House-hunting right now has to be a supremely stressful process.
Fed Governor Christopher Waller even talked about his own experience of finding a house in a recent speech:
As we all know, a singular feature of the U.S. expansion since the COVID-19 recession has been the red-hot housing market. Trust me, I know it is red hot because I am trying to buy a house here in Washington and the market is crazy. Both house prices and rents are up significantly across the nation, while vacancy rates for rented and owner-occupied homes are down.
When I read this my first thought was this: Why would a Fed official be trying to buy a house right now?! He obviously sees what’s going on with prices and interest rates both rising. They’ve been looking at the scalding hot housing market data for months now.
Then I remembered — most people move not because they want to but because a life event forced their hand. Life events don’t care about prices or interest rates.
Unfortunately, if a life event is making you buy a house right now it is not an ideal situation.
If rising mortgage rates don’t help I don’t know what will.
Michael and I talked about the crazy housing market and more on this week’s Animal Spirits video:
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Why It Could Be Years Until We See a Normal Housing Market
Now here’s what I’ve been reading lately:
- Yielding better results (Freedom Day Solutions)
- When the optimists are too pessimistic (Dollars and Data)
- Panic selling quantified (Big Picture)
- What is risk? (Young Money)
- Sequence of return risk isn’t fair (Monevator)
- The art of money (The Root of All)
- The myth that most Americans hate their job (The Atlantic)