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Rising prices and competition are pushing families out of the housing market

In my 4+ decades of life, the American dream has always included home ownership. For many people, this is more of an expectation than a dream. For those who are saving and working to get their first home, this dream is starting to seem out of reach.


Factors Affecting Home Ownership

Rejection of starting houses

The industry as a whole is moving away from starter homes under 1,400 square feet. This is not surprising given that they generally do not offer income from middle and high end homes. With such high demand across the board, why not create what will be the most profitable?

According to floridarealtors.org, building trends in the 1980s included 40% of starter houses. In 2019, this figure fell to 7%. With fewer starter homes available, the competition for them is higher, driving prices up and pushing some potential homebuyers into the rental market.

Prices and interest rates

During the migration shift that began during the COVID pandemic, house prices rose above average in many parts of the country. At some point our local newspaper reported that Polk County, Florida (conveniently located between Tampa and Orlando) is the 7th fastest growing in the nation. Add to this the increase in the cost of materials, and prices continue to rise.

For my family, the expected value of my home jumped 68% in just 3.5 years of living in it. The experts’ warning of a bursting housing bubble may be music to the ears of tenants who have been saving up to buy, but there’s a catch: interest rates.

In an attempt to slow inflation, the Fed raised interest rates. Everything points to what they’re going to take aggressive approach we haven’t seen since the 1990s and are at least weighing a 100 point increase – which hasn’t been since 1980.

This can help with inflation, but as house prices fall, higher interest rates can offset them and leave monthly mortgage payments the same or even higher. This gives buyers the ability to save more for a down payment in order to get an affordable monthly payment.

Buying advice: Save to put at least 20% to avoid paying PMI (Private Mortgage Insurance) on top of principal, interest, taxes, and homeowner’s insurance.

Private rental businesses

The traditional landlord scenario is still in full force in the US. Individuals often start small businesses and rent out properties to those in need of housing but are not in the buying market. According to Statisticsin 2021, there were nearly 44 million rental units in the US. Of these, approximately 1.7 million are single-family houses.

Many families with second homes earn extra money through short-term rentals such as Airbnb as well as VRBO. For leisure and business travelers, this is a great way to get privacy, space and features that you won’t find in a hotel or resort.

As the industry grew, legitimate small businesses emerged as families acquired multiple properties and left other jobs to focus entirely on the short-term rental market.

Some of them have become very innovative by bringing several small businesses together. Last year we enjoyed a week-long getaway that included a wife-run Airbnb stay combined with a fishing charter organized by her husband that we were able to pack together. For them, it provided a good income, and we had a great time. All came out victorious.

It may seem that these small businesses take up most of the available real estate. However, according to an article dated January 4, 2022 No. stratosjets.com.

Corporate rental business

According to an article dated April 10, 2022 property management.comalmost 36% of Americans are renters, and larger corporations are working on ways to profit from this segment.

One way to do this is to take the traditional landlord business model and scale it up. Companies such as Initiative houses buy single-family homes across the country and rent them out.

In many cases, they are in direct competition with individuals wishing to acquire a home for their primary residence.

When it comes to short-term rentals, even hotel chains come into play. Corporations buy single-family homes and rent them out Airbnb-style. I did a quick search after receiving an email from Marriott and found that they own over 3,000 short-term rental properties in Florida.

Construction for rent

The most recent trend has been housing development specifically to create rental-only areas. Rental homes made up 6% of new construction in mid-2021, according to the Wall Street Journal (June 7, 2021), and this figure is expected to double by 2024.

Digging a little deeper, 2021 saw 1.6 million new buildings and 70.4% of these were single family homes (1.13 million). If (and this is very important) the pace of construction remains the same, and the forecast of 12% is correct, then in 2024 about 135,000 new units of single-family housing will be built.

Given the expected Housing shortage for 3.8 million people country is facing, it may not seem like such a big deal. Unless, of course, you’re looking at the area you want to live in, knowing that you don’t have the option to buy one of the houses they’re building.

So what does this mean for homeownership?

For people who want to get out of the rental market and become homeowners, today’s market is understandably disappointing. But who do we blame?

Lack of materials leads to delays in construction. An increase in the price of materials leads to an increase in housing prices. Labor shortages are causing delays at every stage of construction. The availability of remote work allows high-paid workers to move to areas with a lower cost of living. Higher demand for housing is pushing prices up. Businesses buying single-family homes compete for new construction and existing homes. Higher Fed rates cause higher mortgage interest rates.

In the end, this is not so much one factor as the cocktail that the market offers today. Barring some relief, the natural course of events may well be that we are watching the American dream of home ownership dissolve for a large percentage of Americans.

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