Agent Update - In the Long Term, Scarcity Drives Value
2022 took a 180 from the 2019-2021 ‘frenzy’ of refinancing and home purchases. Rate increases in 2022 led to a pause and a market adjustment of 10-30%+ (depending on region) compared to 2021. However, the past 2 months have shown a median value increase of 8%+. How can this be when we have been led to believe it is a repeat of the 2008 housing crisis? Demand and Scarcity. The Millennial Generation is at the stage of life of becoming First Time Home Buyer’s (FTHB), while Generation X is buying or getting ready to buy their Second home for retirement.
If you are considering purchasing your first or second home in the next 5 years, here are some factors other than rate to keep an eye on. After all, compared to the past 200 years, 6-7% is still on the low side With prices down in many markets and sellers negotiating concessions, now may be good time to buy depending on local factors. All numeric data is from the U.S. Census Bureau or URL provided. Median is used for analysis.
1) Institutional Investors:
Prior to 2008 REITs and institutional investors, if not commercially focused, tended to look for multi-unit, high density apartment buildings/complexes or multi-unit/parcel properties and/or Business or mobile home parks. The 861,664 foreclosures on Single Family Homes (SFH) due to the 2008 housing crisis, opened a door. A ‘fire sale’ in residential real estate.
Institutional Investors like Blackstone dove right into the SFR rental market. Recently, Jeff Bezos (Arrived Homes) and Elon Musk (Lennar Corp.) have decided to join. Benzinga estimates by 2030 Institutional Investors will own 40% of SFR’s in the United States. – Scarcity and a rapid acceleration of it.
This strategy may be in line with renewed efforts by the current Administration to renew the AFFH . Case and point... Westchester New York More detail on AFFH in an upcoming ‘Update’.
Speak with your Real Estate Agent to get a feel for how much institutional investing there is in your market. In my view this is a big, if not the biggest variable effecting home values over the next 5 - 10 years. -Scarcity
2) Population Growth, Immigration, net migration and COVID:
Population:
From Jamestown in 1607 through 1900 the U.S population grew to 76M. Over the next 70 years by 1970 it had increased to 205M+ – an almost 300% increase. 1970 to 2022 (52 years) another 160% increase to 355M+. Add to this new construction being almost nonexistent during COVID. Skilled labor remains short and material costs high. More buyers…not more houses. - Scarcity.
Immigration:
From 1850 through 1980 (130 years) 9.6+ million immigrated to the U.S. Beginning around 1970, 5 years after the Hart - Cellar Act through 2020 (50 years), immigration increased an additional 30 million to 45M+. Between 2020 and 2022 an estimated 6 million new residents – 1 million more than the city of Chicago immigrated. Growth of almost 500% of the immigration population just in the past 50 years. As a Nation, historic immigration trends vary +/-. The most recent trend is up and at an increasing rate. New housing isn’t keeping up. - Scarcity.
Net Migration (State to State):
The current trend is emigrating from States with high taxation rates and high cost of living to States with lower taxes and cost of living. Some net negative migration States are CA, IL, NY, NJ. Examples of net positive States are FL, AL, TN, SC, NC, ID, SD, and OR. This will create both scarcity and abundance concurrently. 1,000 people leave CA daily while 8-900 relocate to FL daily. Prices are dropping more rapidly in CA and increasing in FL. Be aware of what market you are in and State and local trends.
COVID:
Small but not to be overlooked, Urban to Rural migration was up nearly 10% in 2020 and 2021. This is Urban/Suburban to small town America. I personally have seen this migration. With Cellular hot spots, data towers, Starlink, etc. the ‘connectivity’ divide has closed. Remote is here to stay. Companies are finding some will take a pay reduction to remain remote. Once the remote: in office ratios reach equilibrium, this trend may resume. -Scarcity
3) Age:
Comparing the 1970 age ‘pie chart’ to 2020 most age groups have remained constant. Exceptions being 19 and under and 55 and over demographics. Relative to the total population under 19 decreased by 24.8%. 55+ grew by 24.40%. A 1:1 swing of homeowners vs. home occupiers. - Scarcity.
4) Income and wealth:
In 197 38% of the population was employed. Today it has risen 45%. A greater percentage of the population earning larger incomes. Mirroring the growth of immigration and benefits of the Civil Rights Act (1964), more men and women are productive increasing discretionary income. Single household income (inflation adjusted) has risen about 10%. However, Dual income (inflation adjusted) households are more than 2x today than 1970. The sharpest increase starting in the early 1980’s.
In 1970 the median home purchase price: household income was 2:1. Today, it is 4+:1. At the same time household Net Worth increased 400% to 749K in 2021 from 186K in 1990. A more than doubling in SFH values in concert with stock market (net equity wealth), 401k, and IRA gains are primarily responsible. More income + greater wealth chasing relatively fewer properties… -Scarcity.
5) Scar-ci-ty:
The state of being scarce or in short supply; shortage.
“a time of scarcity”
6) Summary:
This post is not designed to predict near term trends but rather to help prospective buyers with a broader spectrum of data as to when and where is the right time to purchase. No one has a crystal ball . If Institutional Investor trends continue in conjunction with population, immigration, net migration, age and income & wealth trends, Scarcity will not only continue but accelerate.
Ignore the noise… while there is ‘Crisis’ in some States and markets there are excellent opportunities in others (MI, MN, OH & FL). Do your own homework (trust your gut), find a good Agent and if you have questions regarding financing…it would be a privilege to be involved in your process.
Mark R Jones
Mortgage56, LLC
248.891.8603
NMLS#: 2033325/1065670
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.