Secondly- What would it take for prices to change?
In: Economics
There isn’t a shortage of homes, there is a shortage of homes where people want to live. Urbanization is real and every year more and more people move from rural areas to urban ones (and then neighboring areas urbanize as well).
In my area there is such an influx of new people that we are building apartment/condo complexes now whereas 10 years ago it would have been communities of single family homes.
There was a supply chain problem, that started with lumber imports from Canada. This drove up material prices, making larger homes more lucrative for builders. So, there is an adequate supply of large, expensive homes. What there is a shortage of is low cost housing.
Covid is what happened. A big kink in the supply chain raised prices across the board. Add in the work from home movement causing a lot of mobility in the housing market, which caused prices to rise.
The rising cost of building houses, along with supply issues, really slowed down the building of new houses. So demand greatly exceeded the supply.
It certainly doesn’t help that a lot of people only want to live in major metropolitan areas. This means competition for housing in those areas, which causes prices to go up.
Without the economy crashing right along with it, i don’t see prices really dropping too far. Especially in highly sought-after areas. They’s always some fluctuations, but i dint see prices take dropping too far short of an economic collapse.
One thing not being mentioned in other responses… yes, it is due to more people wanting to live in cities, but another factor at play since the early 2010s is a massive increase in corporate owned houses that are strictly for rent/Airbnbs. After the housing crash in 2008, there was a surplus of low cost residential real estate. Corporations figured out they could come scoop them up and these houses would be appreciating assets. But then sites like Airbnb and Vrbo became massively popular as well, so buying deflated residential real estate in urban areas not only provided them appreciating assets, it also provided a revenue stream that would make money, whilst holding this appreciating asset.
Before the housing crash in 2008, less than 10% of single family homes were owned by corporations. In 2023, that number was closer to 40% (as low as 30% to as high as 45% depending on which sources you believe) of single family homes were bought by corporations. Even if you believe that number is closer to the low 30s, that still means 1 in 5 houses that weren’t owned by corporations in 2008 are now, effectively removing 20% of houses from the market.
And for the average person looking to buy a new home in an urban area, it’s hard to compete with a corporation if they are interested in buying in that same area. While you are going to be getting a mortgage and negotiating on price, the corporation can easily pay over asking price in cash, knowing they will get the revenue stream from it and that the value will almost certainly go up.
House prices are appreciating far faster and more consistently than account interest or stocks. More people, and more importantly more companies, see housing as an investment asset to be acquired and rented out or sold on for a large return on investment.
First time buyers are having to compete with conglomerates who have a vested interest in pumping up the price rather than living in it as a home.
I can only talk about where I live, but normally the state builds x amount of houses per year to accommodate growth. During COVID most new construction was stopped. On top of that we had a record year of people moving here from high cost of living areas, specifically California and Washington. Then when it started to rebound, new construction now had to get water permits, which are now more limited, and they had to prove that the current water supply there could sustain it. This caused the market to never recover. And honestly, it never will unless a nice chunk of people either move out or foreclose on their home. Or the plan to have a desalination plant built in Mexico, that runs up here for new water. In case you haven’t guessed yet, I live in Arizona.
In addition to over things mentioned, Millennials entered the height of their home buying years. GenX was a smaller generation than Baby Boomers, so that helped keep housing prices relatively lower for a couple decades.
It isn’t entirely true that there hasn’t been a huge increase in people. It’s true that the population has not increased dramatically. However, the proportion of people who now live alone or desire to live alone has. People are no longer content to live at home until they marry (in the broadest sense of the word). Add to that the increase in numbers who actually choose to remain single lifelong and the number of those newly made single by divorce and you have additional pressure not only on the number of homes needed but also the type of accommodation required. As others have described, it’s probably not the most significant factor but it certainly needs to be taken into account.
I only skimmed the other answers and didnt see this: a big problem particularly in desirable zip codes is residential zoning laws.
Basically, you just can’t build multi family homes or apartments in a lot of places that they are desperately needed. This limits supply which raises home values. Good for people in that zip that already own, and a big f you to everyone else (which is why homeowners fight against zoning changes).
COVID made people realize that being trapped in the city wasn’t as fun as it used to be. Part of the surge was people wanting a yard, and working remote meant they could leave the cities.
These things snowball too. After you lose a house with a full price offer you start offering over asking. And suddenly everyone’s doing it. Kind of like panic buying of bread and milk before a storm.
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