The Housing Market

Hey, it's Derek with the McGowan Mortgage team. Today I'm diving into supply and demand in the housing world. So this right here shows over the last 15 years, the household formations, how many homes have been created year by year. So on average you see it's about 1.3, 1.4 million per year. So until, you know, Covid happened and builders just let loose and they really got bogged down by the supply chain issues, issues now they kind of bounce back to a more normal level. So this is where we're currently at and this is the average over the last 15 years. This kind of shows we're just a little bit above average currently this year. But we're at an all time deficit. We need way more than this to be created. So right now we have 1.7 million new homes being started. This, the housing start means a builder put a shovel in the dirt, they started building a house. It's not necessarily finished yet. It's also important to keep in mind that across the country we wipe away about a hundred thousand homes a year based on age and conditions. So this is 1.6 million new homes on the list. When the dust, when the dust settles. Now this is the demand. So we need at least about 1.4 million homes to satisfy all the buyers that are right this second today looking for a house. So this looks like this math works. Looks like we have about 200,000 more homes than what we need. However, there's a huge supply chain lag, which I'm sure we all can attest to. Sure, we've all heard supply chain shortages quite a bit the last couple years. So sure, builders normally are much closer in numbers here where if they, you know, starting 1.7 million new homes, they probably plan on completing 1.6 million new homes. Usually it lags by about 100,000 behind. However, the supply chain shortages have this lagging about 400,000 behind. So there's more homes than ever before that are being built and they're in the middle of construction and they're just not completed because it could be, you know, lumber was an issue at times the last couple years. The prices shot up. It was super short on supply. Carpenter be issues and delay homes. I've seen windows delay homes, the chip shortage for all the appliances in the house, a lot of different, you know, unique things that are really delaying houses. So this is, you know, creating a huge lag here. So really we need 1.4 million new homes. There's only about 1.3 million on pace to be completed this year, and we're going to wipe away 100,000 houses off of the market that are currently existing homes. So really, we only have 1.2 million new homes on the way that are going to be completed this year. Once we take out the old homes out of the equation, we need 1.4 million. So we're already deep in a deficit and we're getting further away. Those are kind of surprising numbers right there. When we really break it down. And I know there's a lot of reports, you can read a lot of headlines. Hey, housing supply is on the way back. It's. It's on the upswing. Well, and it is. Those reports are wrong. Those reports are looking at, you know, January, February, March of this year compared to May and June of this year. And yeah, this was about 0.9 million and.8 million, and now it's a little over a million. That's better. But we, look, we span that out a little bit. It's a seasonal adjustment every year. Many families wait until the kids are done with school in May or June, and then they move in the summer months because they don't want their kid relocating to a different school, different group of friends during the school year. Well, that's what we're experiencing right now. Every single winter, you know, the housing inventory drops because people aren't listing their houses. But as soon as summer happens, it balloons back up because more parents are able to move. They're going to list their house and move to their next desired location. So this is just part of the, you know, typical summer swing and house, you know, houses are more available now, but it's also not as if the market has, you know, found all these new homes that weren't there previously. This is just part of the, you know, annual adjustment every season now we got, you know, 1 million homes that are available in inventory. However, 600,000 of those homes are already under contract because most of those are new builds, and builders won't break ground unless they have a qualified buyer already in place for it. So you take 600,000 of those away because they already have a name on the sign, a buyer on the lot. There's only 400,000 actual homes available in inventory that somebody could walk out to tomorrow and buy because most of them are already claimed. So we compare that to a handful of years back where, sure, there was 1.5 million homes out there, but only 25 of them, 25% of them were claimed. So that left, you know, 75% still available to be claimed, whereas today there's 8, 900,000 homes, but 60% of them are already claimed. So this is 33,000 from the lowest that it ever has been. So in inventory today, the lowest was just earlier this year. So we only have 33,000 more homes that are actually available than we did a couple months ago. Not really, you know, the time to start celebrating the housing market just yet getting out of a slump. And the other piece to the puzzle is, you know, the idea is, hey, maybe if some buyers go back to renting, get out of the housing market, you know, that'll leave enough homes for others to buy. The puzzle problem there is we're at an all time low vacancy rate for rentals. And this also means that potentially you could have some people where in the past, if they fell in a hard time in 2008, they just had to get rid of their house because people had, you know, second homes, best property rentals. And when they fell in a hard time, maybe it was difficult for them to just up and leave the current home that they're in with their family. They're going to hold on to that primary residence. But if they have an investment property in another city or down the street even, doesn't matter, I guess they can easily let that go. They kind of, you know, sell that at a cheaper price because they didn't have to get top dollar and they just needed to let properties go because properties were tanking. Today, everything's rented. That's easy money for investment properties. So people that have secondary homes, they're not letting them go. There's no reason to do it. The many are locked into great rates and many have a tenant in there if it's an investment property, and that's what you want as a landlord. So there's much less incentive for people to just up and sell their investment properties or second homes these days because they're finding people to fit those needs and just to live in those properties. So you're not seeing investment properties fly up for sale like you used to, because that is a whole nother aspect of the market that could come into play if it was available, but it's not. And so that's not help on the way. We need builders to build new houses. That's ultimately what it's all about. But you can see builders are still behind. They're lagging with the supply chain shortage. And while they're lagging house values, house prices are going to continue to rapidly increase, just like you've seen the last couple years.