Real Estate News March 2022

What is going on with the housing supply?

What is going on with the supply of homes on the market? Why is it so low and why are prices climbing steadily? Take a look at the graph below showing the construction of new single family housing over the last 5 decades. You can see that the number of homes being built over the past 13 years is below the 50 year average. Obviously, this poses a really big challenge for anyone who is a first time homebuyer or is coming into the market with no equity to work with.

When it comes to housing, we have to ask, is it getting more affordable or more expensive to build homes? Let’s take a look at the cost of lumber from 2020 to 2021. In May of 2020, $50,000 worth of lumber could build approximately 10 homes. In May of 2021, that $50,000 of lumber could build a little over 2 homes. Yikes! Lumber was trading at $1452 per 1000 board feet as of Mar 4, 2022. Lumber is just one of the many supplies that goes into building a home. You also have drywall, flooring, insulation, roofing, and other costs to consider while building a home, and several of these materials have also gone up.Not only is the cost of materials going up, but so is the cost of labor. Due to inflation, the cost of living has increased, so labor costs have significantly risen. Contractors have also been slammed lately with all of the renovations people are doing on their homes, so they are harder to book for your own projects.

Overall, the cost of new construction homes is currently increasing so dramatically that this just amplifies our housing supply shortage and drives home prices up even further.

This graph shows how low the active listings in the USA have actually been. In SLO County the number of homes on the market right now is only 339.

What about the housing demand?

We all have heard about the supply lately. Everyone is saying supply is low, which is true for active listings, but the total number of homes sold is actually up. In 2021 there were 6.12 million homes sold compared to 5.64 million in 2020 and 5.34 million in 2019. This is the highest number of homes to have sold since 2006. Buyers are so eager to purchase a home that the average time it takes to go under contract for SLO County is only 9 days! The demand for housing is extremely high, and because of that, values are rising.

Due to the volatility of the markets, people are looking for a secure investment. Inflation just hit 7.5% as of January 2022, which is the highest it has been since June 1982. For these reasons, people are looking to invest in real estate as a hedge against inflation. Another beautiful thing about owning real estate is you can get a fixed rate mortgage, which is better than having rent continually rise each year. In fact, in some places in the country rents are rising faster than home values. The inflation rate is pushing more people to invest in real estate, which is causing a surge of capital to flood into this asset class. This trend is likely to continue to push property prices higher.

This graphic below demonstrates yet another reason why homebuyer demand is at an all-time high. If you compare the credit rates of today’s buyers to the buyers of 2005-08, you will see that the today’s buyers have much better credit scores. Never before have U.S. credit scores been higher than they are now, which has enabled a larger percentage of the population to both afford higher-priced homes and buy more investment properties as well. With housing supply at historic lows and buyer demand poised to acquire more real estate, a perfect storm has been created that continues to push home prices higher for the foreseeable future.