Housing price increase... why?

[jfrog]

Here is my theory on the unspoken part of why housing prices are increasing so much. While I see most articles blaming it on people wanting more space and/or housing shortages I think the primary root causes are far simpler.

1. There are fewer homes on the market due to foreclosure moratoriums. Foreclosure moratoriums keep houses that would otherwise be for sale from being for sale, artificially lowering inventory. I would also consider eviction moratoriums here as they also prevent people from selling their rental properties because no one will want to buy with a renter that can't be evicted so they can move in and doubly so if that renter hasn't been paying rent.

2. Most mortgages require some down payment and decent credit. Look no further than the stimulus checks. These gave American families cash and often alot of cash (especially if they had kids). This allowed not only have cash on hand to pay the downpayment/closing/moving costs but also cash to pay down credit card debt which can greatly improve credit scores, allowing people that otherwise wouldn't have qualified (or qualified for a low enough rate to afford a home) to ultimately qualify.

Essentially, the government mandates and programs artificially inflated the number of potential home buyers available while simultaneously reducing the number of homes for sell. IMO That's the reason prices rose so fast. Also, once these mandates end there's a good chance IMO that housing prices will correct and come falling down. Throw in some inflation that drives interest rates higher and it's going to go kaboom! Whether you want to call it a bubble or correction or whatever, there's big potential for a housing style bubble burst once those mandates end. Market will presumably be flooded with alot more houses and alot fewer potential buyers. This could also leave first time home buyers in the pandemic being very upside down on their mortgages for years to come.

[jfrog]

Some data on the number of people potentially facing foreclosure of eviction.

https://www.forbes.com/sites/zackfri...e-or-eviction/

[coksiw]

Yeah, I have read in the WSJ articles about that. No doubt the Biden's check is exacerbating inflation. Shortages of material, because of lockdowns, and shortage of labor, because of the Biden's check, is reducing the supply, and the abundance of cash, because of Biden's check, is increasing the demand. Hence, the 12-months inflation, which was like 7.6% in July.

[Esaias]

Housing prices are increasing and have been for several years. There are several factors contributing to this:

(In no particular order...)

1. Interest rates are crazy low and have been for years. This encourages people to buy homes = more demand = higher prices.

2. A LOT of individuals have been getting into real estate investing over the last 5-10 years who otherwise would not be. Again, more demand = higher prices.

3. The economic downturn since 2008, and the massive increase in immigration (both legal and illegal) have contributed to a high demand for rental units. That is, a lot of people were/are not able to buy so they rent. This means investors both big and small want to accommodate them, so it increases INVESTOR demand for acquisition of housing. More demand = higher prices.

4. Private equity is moving more and more into residential real estate investment as are large institutional investment firms like insurance companies and hedge funds, pension funds, etc. Stocks and bonds aren't attractive as they once were. Thus, again, more demand = higher prices.

5. While new housing is being built, it is nowhere near the demand. Most investors won't buy new houses, they aren't really suitable for rental properties. So all the demand is funneling into existing stock. You got it, more demand = higher prices.

6. A lot of new investors over the last 5 - 10 are unfunded sponsors, aka broke. So they try "wholesaling", options, and other "creative methods" to get control of a property then flip it to an actual investor with access to money. This increases the price by the insertion of a middleman trying to scrape 5-10k out of a deal. Thus higher prices.

7. All this demand creates what is called a seller's market. Sellers see prices going up, they know they can hold out for top dollar and still sell pretty quickly. Seller's market = price increases.

8. Large equity firms like BlackRock are buying everything they can sight unseen and paying asking price OR MORE JUST TO GET THE PROPERTY. They have BILLIONS to spend and are doing it like there's no tomorrow. Thus higher prices.

9. #8 ties into the "Great Reset", which is an economic plan to render most people as renters. BlackRock and several other large PE and VC firms are positioning themselves as the hopeful future Landlords of America.

10. Inflation in general. Which = higher prices.

There are some additional factors but I think most of them are subsets of the above.

[Esaias]

What we are seeing is a bubble. It will pop (ie correct). That will usually flip things to a buyer's market where cash is king. Those who position themselves to adjust to that new market direction will probable acquire huge legacy wealth for their kids/grandkids.

[jfrog]

Originally Posted by Esaias

Housing prices are increasing and have been for several years. There are several factors contributing to this:

(In no particular order...)

1. Interest rates are crazy low and have been for years. This encourages people to buy homes = more demand = higher prices.

They have been very low for a long time though. I'd say low interest rates are the current normal. That said, increasing interest rates will still greatly lower demand. Leading to housing prices to rapidly drop to compensate.

2. A LOT of individuals have been getting into real estate investing over the last 5-10 years who otherwise would not be. Again, more demand = higher prices.

I don't think small time real estate investors have been buying much real estate with these high prices. So I'd question whether this is really the cause for high pandemic prices.

3. The economic downturn since 2008, and the massive increase in immigration (both legal and illegal) have contributed to a high demand for rental units. That is, a lot of people were/are not able to buy so they rent. This means investors both big and small want to accommodate them, so it increases INVESTOR demand for acquisition of housing. More demand = higher prices.

Agreed, immigration is a huge point as well.

4. Private equity is moving more and more into residential real estate investment as are large institutional investment firms like insurance companies and hedge funds, pension funds, etc. Stocks and bonds aren't attractive as they once were. Thus, again, more demand = higher prices.

REIT's. Though I was under the impression that alot of the Single Family Homes were still not owned by such companies. I thought they mostly went for condo's/apartment buildings.

5. While new housing is being built, it is nowhere near the demand. Most investors won't buy new houses, they aren't really suitable for rental properties. So all the demand is funneling into existing stock. You got it, more demand = higher prices.

I've heard this everywhere but I've not found actual evidence about how many houses are being built yearly. Do you have something?

6. A lot of new investors over the last 5 - 10 are unfunded sponsors, aka broke. So they try "wholesaling", options, and other "creative methods" to get control of a property then flip it to an actual investor with access to money. This increases the price by the insertion of a middleman trying to scrape 5-10k out of a deal. Thus higher prices.

This is a good point, but really how many houses are being sold to such people - if it's a very low percent less than 5% then it probably has no appreciable affect on home prices?

7. All this demand creates what is called a seller's market. Sellers see prices going up, they know they can hold out for top dollar and still sell pretty quickly. Seller's market = price increases.

This may be true. Sellers are holding back trying to time the market. The question is do they still sell after a major correction or do they hold on to the properties at that point?

8. Large equity firms like BlackRock are buying everything they can sight unseen and paying asking price OR MORE JUST TO GET THE PROPERTY. They have BILLIONS to spend and are doing it like there's no tomorrow. Thus higher prices.

Wasn't aware they were doing that

9. #8 ties into the "Great Reset", which is an economic plan to render most people as renters. BlackRock and several other large PE and VC firms are positioning themselves as the hopeful future Landlords of America.

I don't see this one. I don't think there's some conspiracy to have people rent homes.

10. Inflation in general. Which = higher prices.

There are some additional factors but I think most of them are subsets of the above.

What we are talking about is why the houses prices are so inflated. Inflation is what we are talking about, not a cause of it?

That said inflation will play a role in the coming deflation - as houses becomes inflated in value there will be less buyers and when that happens then the prices will start dropping.

[mont.preterist]

Another reason that we need to consider is that the dollar has lost value, thus driving down the purchasing power of the dollar.

With the printing of the dollar to the extent that it has now became monopoly money then we see that the value of that fiat currency is dropping. The house that just last year was worth 150k now is worth 250k.

[Esaias]

Originally Posted by jfrog

I don't think small time real estate investors have been buying much real estate with these high prices. So I'd question whether this is really the cause for high pandemic prices.

You obviously aren't in the business.

[Esaias]

Originally Posted by mont.preterist

Another reason that we need to consider is that the dollar has lost value, thus driving down the purchasing power of the dollar.

With the printing of the dollar to the extent that it has now became monopoly money then we see that the value of that fiat currency is dropping. The house that just last year was worth 150k now is worth 250k.

What a lot of people don't understand is HOW that excess money gets "printed". It's by a mechanism called "lending". More loans available = more money available = higher prices.

Another element of inflation is COGS due to regulatory requirements, ie federal and state taxes and other regulations that impose unneeded costs on businesses and producers. That cost is almost always passed on to the end purchaser/user.

[jfrog]

Originally Posted by Esaias

You obviously aren't in the business.

Got anything more than your word for it?