Will Housing be "the Biggest Business Story of the next 5 Years"?

[Spencer Clark]

The Washington Post published an article from an outside contributor (and investor), Conor Sen, claiming that while software was the biggest business story of the last five years, housing will rule the next five years. I'm curious what fellow real estate investors think, and how that would impact us specifically.

To summarize his assumptions:

• The US economy is constrained in labor & capital.
• There will be growing demand for new housing (esp. SFH), of which there hasn't been much new supply since the financial crisis.
•  There is a shortage of construction workers needed to fill future construction demand, and significant obstacles to expanding the supply of potential workers.

He thus predicts:

• Construction wages will rise due to competition for scarce talent, stealing workers from other blue-collar industries.
• Workers will continue to flee the rust belt to the Southeast and Coasts where construction jobs will be.
• Since immigration laws will impede importing labor, sectors like agriculture and manufacturing will continue to move overseas.
• Other sectors will also hurt as rising costs for construction crowd out consumption. Capital will increasingly flow to the housing sector, crowding out investment in other fields.

In short: "Housing is set to eat the U.S. economy."

Do you agree with this outlook? What risks and opportunities do you see for investors in the next five years (whether or not you agree)?

[Darwin Crawford]

I agree that there are some unsettling trends, but they are local and i can't quite get my head around their root causes.  In Scottsdale, where I work and invest, pricing has gone through the roof in the past 6 months.  Two of my rental condos have done 35% appreciation in the last 6 months, and I cannot figure out why.  Not a lot of job or wage growth to speak of, but prices are up.  Also, through my day-job, I can tell you that most pricing in ZIP codes 85251, 85257, 85250 and 85258 is at or above 2006 levels, which was, by definition a bubble.  I literally have $80K in cash sitting in a stupid savings account that I can't justify spending locally, as cap rates here are in the toilet based on price.  

I agree with @Tzvi Balsam that most of the rentals in this market only work numbers-wise (and they BARELY do) at the current low rates, and if interest goes to more realistic levels (6-7%), they won't make a dime.  

For my day job, I'm an acquisitions manager for a national home buying company, and see pricing, motivation, etc in various parts of the country.  The statement from the OP that rust-belt locations are dying is unequivocally correct.  We routinely pick up perfectly good rentals for under $10K.  In other markets, flippers and investors have bid up pricing so high that we literally stopped all advertising in those places.  There's just no margin anymore.  

In Flipper-World out here, the margins are razor thin, and I have talked to a lot of that crew who are making starbucks money while risking tens of thousands of dollars. I just cannot see their logic. However, this is a local trend, which I see in Arizona and other west-coast markets with higher priced dirt. In the beginning, they are all gung-ho and about to make a fortune, but when I look at closed values (again, I can do this through work) and estimate what they put in them (I had 10+ years in construction before I got into REI), add some holding cost, and there just isn't jack left on the table.

Now, what I can't get my head around, is whether or not these trends represent a "bubble".  Yes, the pricing is there, but the easy money is not.  The last re-fi I did was 2014 and they crawled up my hole far enough to make me sure that any and all "easy credit" was just a dying memory.  However, I know that most of middle america is FUBAR financially, with little to no savings, credit card debt has spiked, and real wages are flat.  Homeownership is at its lowest level since 1965, and student loan defaults are close to 40%.  So what does that mean?