Housing "Supply" Issue? No, It's A Greed Issue.

There are a lot of potential places to begin this post, but this one just popped into my head, so I’ll go with it. In probably early 2020, right before the pandemic, my wife (then just “girlfriend”) and I were looking at potential homes to buy. We eventually did buy in September of 2020. We went to this one house, about two miles from where we currently live, and it was basically a 1974 pornographic film set with a random grand piano and a sunken living room. It did have a nice view of downtown, although the backyard sloped downward drastically, and I have a large dog who was aging at the time. If you read the one-sheet on this house, virtually nothing had been updated since about 1998. The windows were not even up to grade/code.

Asking? You guessed it. $495,000.

So, half a million on a house that I’d probably need to put another $150,000 into, if not more. Now, the good thing is that right before the pandemic, rates were probably 2.8% on a 30-year note, so that's helpful. But during this period, from February to September 2020, I probably looked at 35–40 homes, all in a “high-growth” area of North Texas. And while some were nice and updated and had clean lines and nice yards, what struck me about the majority was that nothing had been done in decades, and yet people were still thinking they could get way above what the last few sales in their neighborhood got.

And looked, it worked — many of those houses did sell. I got outbid on a few.

But when we speak of housing in this country, we usually frame it up as a “supply issue.” And I agree that we seem to have too little inventory. I could give you a bunch of data on this, but the data is often conflicted during Presidential years based on what each ideological leaning wants you to think. For now, let’s just say that many people — Kamala Harris primary among them — think it’s a supply-side issue.

There’s veracity to that, absolutely.

But what about the greed issue?

With rates at 7% now, there’s a mobility issue for home sellers, unless they have family money or have saved/managed well. If you sell and want to buy again vs. renting, you will need to take a percentage of what you got from the sale and roll it into a new down payment — and if you’re essentially doubling your rate, that’s a complicated financial equation for average citizens. I believe we are calling this “Rate Lock.”

How many times in the last five years have you heard a realtor describe the market as “crazy?” I’m probably at 1,000+ on that. And it is crazy in the sense that some people will buy a home at $850,000 when it should be not a cent over $500,000 just because they want to live near XYZ-thing or ABC-school or DEF-grandkids. I get it. Price vs. value, right? And if the free market says you might be able to get x-price, go for x-price + $50,000. You need money to live your life after you exit that domestic bliss.

I cannot help but think this is as much a greed issue as a supply issue, tho. And at some point, the market will tap out — because, unless the Boomer Wealth Transfer (TM) is handled well, people just won’t be able to afford the prices that sellers expect from their homes.

This has been covered in thousands of places, including here:

If I had to 35,000-foot this issue, I’d say that the “supply-side” problem is caused by ridiculous governmental paperwork issues on new developments, as well as everyone’s old friend, “NIMBY.”

But what's seemingly equal to the supply-side issue is the sheer greed issue, and the belief that housing, as an asset class as opposed to a right, simply must perpetually be up and to the right forever.

How do you see it?