Beyond BuzzFeed: Tackling the 25 Toughest Homeownership Questions – #10d
Are we headed for another Great Depression in Real Estate?
The following is the fifth of a six-part response to Suzanne’s Buzzfeed comment. Here are the links to the full series:
- Introduction
- Are Home Prices Really Dropping?
- The Reality of Home Value vs. Price
- Crisis and Recovery
- Current Market Dynamics
- Conclusion
“I was in the process of building a modular home on my small 3/4-acre property but then stopped the process in construction. Ultimately, the interest rates were too high, and my mortgage payment would still be $2,500. I make $90K a year and can’t afford to buy a house. That used to be considered good money. Here in California, home prices are dropping, but I was told that prices have nothing to do with the ‘value’ of a home. I call bullshit. When enough people stop buying at the prices that are out there, and prices fall, then the value of homes is falling. They need to fall off the cliff; we need another Great Depression to bring home prices back down to reality. Big Business has its fingers wrapped around our throats because everyone needs to sleep somewhere, right? It’s a consumable that they have figured out how to wrangle every last dollar out of people, forcing people to be renters forever.” –Suzanne, 53, California
A myriad of factors converge to shape the dynamics of homebuying and selling in 2024. From the pandemic-induced shifts in living preferences to long-standing issues like underbuilding and restrictive zoning laws, each element contributes to the current landscape. Low interest rates and increased demand among millennials have fueled a surge in buying activity, while construction slowdowns and material shortages hinder the supply of new homes. Additionally, speculative buying, migration patterns, and institutional investor purchases further intensify the challenges faced by prospective homeowners. Understanding these intertwined factors is crucial for navigating the present real estate environment.
Today’s housing market dynamics are influenced by various factors, including:
Low Interest Rates: During the early stages of the pandemic, historically low interest rates made borrowing cheaper, spurring a surge in homebuying as people took advantage of affordable mortgages.
Pandemic-Driven Demand: The pandemic shifted housing preferences, with many people seeking more space for remote work, schooling, and recreation. This increased demand for single-family homes, particularly in suburban and rural areas.
Millennial Homebuying: A large cohort of millennials, who are now reaching peak homebuying age, entered the market, adding to the demand.
Construction Slowdown: The pandemic disrupted construction activities due to labor shortages, supply chain issues, and health restrictions. This slowed the rate of new home construction.
Underbuilding Since the Great Recession: The housing market has been underbuilt for years, with new construction not keeping pace with household formation. This long-term undersupply has contributed to the current inventory shortage.
Reluctant Sellers: Many homeowners were reluctant to sell during the pandemic due to health concerns and uncertainty about the market. This further reduced the number of homes available for sale.
Material Shortages: The pandemic caused significant disruptions in global supply chains, leading to shortages of key building materials like lumber, steel, and concrete. This increased construction costs and delayed projects.
Labor Shortages: The construction industry faced labor shortages, partly due to pandemic-related health concerns and a lack of skilled workers, further slowing the pace of building new homes.
Speculative Buying: Some markets have seen speculative buying, where investors purchase homes with the expectation of rapid price appreciation, exacerbating the price increases.
Zoning Laws: Restrictive zoning laws and land-use regulations in many areas limit the ability to build new housing, especially multi-family units. This contributes to the supply shortage and drives up prices.
Lengthy Approval Processes: The time-consuming and costly approval processes for new housing developments also slow down the addition of new inventory to the market.
Income Stagnation: While home prices have surged, wages for many workers have not kept pace, making homeownership increasingly unaffordable for a large portion of the population.
Rising Rents: As home prices rise, so do rents, making it harder for renters to save for down payments and transition to homeownership.
Migration Patterns: Remote work has allowed people to move away from expensive urban centers to more affordable areas. However, this has also driven up prices in previously affordable regions, spreading the affordability crisis.
Investor Purchases: Institutional investors and private equity firms have increasingly entered the housing market, purchasing large numbers of single-family homes and rental properties. This has driven up prices and reduced the availability of homes for typical buyers.
Other posts in this series:
