1. Lack of investment by homebuilders
According to data from the U.S. Census Bureau, fewer homes were built in the U.S. in the 10 years following the 2008 financial crisis than in any decade since the 1960s.
From 2010 to 2019, a total of 6.8 million new privately-owned housing units were completed in the U.S., significantly lower than the 9.7 million units completed in the 2000s and the 8.6 million units completed in the 1990s.
A major reason for the drop in new housing construction following the 2008 financial crisis was partly due to the housing market crash, which led to a decline in demand for new homes and tighter lending standards (Dodd-Frank).
2. Higher input costs
Additionally, builders faced various challenges during this period, including higher land and labor costs, regulatory hurdles, and a shortage of skilled workers for construction.
These issues are only more pronounced now with higher wages, higher input prices such as lumber, concrete, etc., and of course, financing costs as of last year!
3. Massive lack of housing supply to meet demand
Last year, Freddie Mac published an article, “Housing Supply: A Growing Deficit,” noting as of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units.”
Meanwhile, the National Association of Realtors projects that the housing deficit is closer to 6.8 million homes.
Lastly, a report published by the Fed last year, “Volatility in Home Sales and Prices: Supply or Demand?” find that a 30% increase in the monthly number of homes coming onto the market would have been necessary to keep up with the pandemic-era surge in demand.
4. TikTokers need more space at home
However, there is a new dynamic that has arisen over the past 3 years, which is how labor is defined and its impact on housing. Many workers are now choosing to work from home, and also, the younger entrants into the labor force are now earning income from alternative methods, all requiring some “extra space” at home and not an office to go to (TikTok, Amazon sales, Crypto trading, etc.) – this is all very supportive of housing demand.
The stability of the U.S. housing market cannot be underestimated. Post-COVID, when mortgage rates were lowered to historically low levels, most homeowners took the opportunity to refinance their homes to take advantage of the interest rate savings. Fast forward to today, 50% of all mortgages outstanding are under 4%, fixed for 30 years; 40% of all homes are owned free and clear, and nearly 100% of all borrowers have mortgages lower than the current rate!
Will we see a crash? NO!
We feel given the structure of the supply-demand landscape, there is no impending crash, but we feel the market will be supported faster than expected.
In summary, whether you say we are 4M units short, 6M units short, or 30% short – we are short, making this a great opportunity to start building your U.S. rental portfolio, given rental income and yields will continue to rise.