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Will New Builds Help Solve the Housing Shortage?

Will New Builds Help Solve the Housing Shortage?

Housing prices have been extremely high over the last several years. There are many reasons for the escalated prices. One of them is, around March 2020 COVID-19 exploded and changed everything. Individuals that had jobs began working virtually out of their homes, and a house became more than just a place to have dinner and spend weekends. It became a workplace and a complete domicile.

Some individuals that lived in what can only be called restrictive states, with high state income taxes, high gas taxes and in some cases weather issues, decided to move. Even large companies like Tesla and Oracle decided it was time for them to move as well.

This migration had a huge impact on supply and demand in markets where people are migrating to states like Florida, Texas, Tennessee, and Utah, just to name a few. When people sell a property in a state with highly inflated prices, it gives them a large amount of money to purchase in a state where prices may not be as high. We’re going to discuss some other factors that have greatly affected the price increase of single-family residential properties.

The FED has had very low interest rates for the last several years which can allow someone to overpay for a house and still have a reasonable monthly payment. Those days are in the process of coming to an end, and we will see the FED raise interest rates numerous times in the months ahead. Many individuals are unaware that during the Carter administration we had interest rates for single families that were in the 17% range, that’s almost credit card rates. What’s ironic is there were people that were still making money by buying property and hanging on to it or renting it during that economic downturn.

Another factor is the increase in lumber prices. A little over 10 years ago a sheet of three-quarter inch plywood was less than $20. In this current market it’s been as high as $55 a sheet. A 2x4 that you could buy for $2.50 has recently been almost $10. Now you have to get on a waiting list for windows and doors, that can be as long as six months. Because of tornadoes and other weather issues in some markets, there’s been a shortage of roofing shingles. Large home builders are now adding a surcharge over and above what they would normally charge to build a house, to make up for the escalating prices. Truckers are charging more for delivering building materials because fuel prices have gone through the roof. This past year diesel fuel has conservatively doubled in some states. That is all passed on to the builder who passes it down to the buyer. The market is ready for a plateau. The prices people pay for money tomorrow, essentially interest rates, will have a negative effect on price increases. Every time those rates go up one eighth of a percent, thousands upon thousands of people are eliminated from being able to get a mortgage. It has a serious chilling effect on the economy.

As the economy starts to slow, manufacturers will get caught up with their backlog of orders. Classic supply and demand. However, this is still dependent on fuel prices as they continue to rise. As homeownership becomes more and more expensive and more restrictive, the obvious starts to show. There will be a large market for apartments and rental property. Many states like California, Washington, and Oregon are dealing with affordable housing for low-income people. That could be a whole new opportunity for an investor that really has the knowledge of how to solve that problem. The more you know the better you do economically.

With no slowdown of people moving out of restrictive states, this trend should continue for the next few years. The need for housing will be here for the rest of your lifetime, it’s just knowing how to take advantage of your opportunities and understanding where people are relocating to. If you live in a restrictive high tax state, there are still opportunities for people that won’t move because of family or other issues. They just simply will never move. Your opportunities just become a bit more challenging. Remember people’s basic needs are food, water, and shelter. These never go away and with that there is always an opportunity if you know where to find it and know how to structure it to be a win win for everyone involved.

Areas of Review

Takeaway

Big picture takeaway points

  1. There are many ways to source funds.
  2. Everyone is in a different situation and funding may reflect this.

Reflection

Self-reflection questions to think more about the content

  1. Have I done my due diligence and know about all my lending options?
  2. I know my credit score and therefore know what type of funding I could qualify for.
  3. I will let the deal tell me what type of funding would be best.

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