The Real Estate crash isn’t coming… Housing prices may double

*Statista graph of available housing units for sale by year

TLDR:?The supply of homes is consistently decreasing while the demand for homes (US population) continues to increase. Home prices are going to skyrocket in price “DOUBLE” over the next 10 years without major changes in banking operations, restrictions to inflation, reducing supply chain issues and offering better investments for wealth preservation other than real estate.

It seems completely counterintuitive and frankly irresponsible to believe that the real estate market is not heading for a once in a lifetime crash (Again).

We have irresponsible tenants not paying rent, Landlords up to 20+ months behind on mortgage payments, and a poorly administered government bailout program that hasn’t prevented tenants from being evicted or property owners losing their homes.

Meanwhile home prices continue to skyrocket, future buyers have given up on competing for good homes with pre-approved loans when cash buyers are swarming the market, and the general feeling from the press and society is this feels like 2008.

All of these reasons are driving people to consensus that the bubble is ready to pop and the market is cooling off.?

The reality pushed forward by consensus is a false hope. One that is going to bite millennials hard and cause them deep seated regret for not taking decisive action before house prices grow 100-300% over the next 10 years.

And who or what exactly are the causes that will drive home prices to double, triple, or even quadruple in the next 10 years??Well… this isn’t going to be a short easy answer.?Sorry, life and real estate rarely are simple subjects so please bear with this attempt to be concise while informative.?On the other side of this discussion is the opportunity for you the reader to understand the motivations of the complex relationship of economics and real estate that spans Banks, Inflation, Supply Chain Issues, and Wealth Preservation.

BANKS

First we have the Banks, which have three notable controls on housing supply and demand.??Mortgages, Foreclosures, and Loans to Builders.

Financial institutions aren’t making money with mortgages at such low interest rates.?While they are federally required to not discriminate what’s happening on the ground are delays in processing, inspectors finding any excuse for a home to not be worth the selling price, increased closing costs, and multiple checks on the buyers credit lines and bank accounts.?

The banks haven’t made mistakes like in 2008.?They’re immune from fear and pain due to poor investment choices. In fact, they are busy buying homes.?Where do you think these calls are coming from to buy peoples homes??

More so, the banks are thrilled to foreclose on suffering landlords. They gain a writeoff on the mortgage and ownership of the property. ?And just like in 2008 they can winterize a home and let it sit on the market with monthly maintenance costs well below the rate of inflation. Right now winterizing a property with insurance at the sole proprietor level in the Atlanta are is roughly $600 per month including insurance, maintenance, and property tax.?That’s leaving lights on with camera’s!?The average monthly growth rate for metropolitan homes in value is over $3000 for a three bedroom two bath home.?

And then there’s the ability for the banks to control loans to builders. ?Whether they do this or not is reflective of the gains from those loans. Given that mortgages are unprofitable at the moment… why on earth would the banks increase the supply of houses??It just doesn’t make sense for the banks to make standardized loans and increase their holding risk when foreclosures are on the way.

INFLATION

This is a heated subject right now with nearly daily news reports on inflation being here to stay.?While many pundits are focusing on the increased monetary supply of currency printed during the pandemic. M1 is up 34% over last year and M2 is up 23% from last year with predictions of double digit inflation in 2022.??(for simplicity M1 monetary supply is physical cash and M2 is the M1 supply plus savings deposits and like accounts).

Historically inflation has followed the monetary supply with an exception in the 1980’s *83-85 where inflation broke from the correlation. This exception is widely attributed to lowered oil costs (Energy) which allowed an offset of the increased Monetary supply.?If you’ve been to the gas station at any point this year you know this hope is already gone.

Thus, if we align with historical trends on inflation aligning to M1 and M2 supplies we will see double digit inflation in the near future and that will directly impact housing prices equivalently.

SUPPLY CHAIN ISSUES

“The median price of a newly built home sold in August was 20% higher than August of 2020, according to the U.S. Census.” – CNBC ?October 18th 2021

If you’ve been to a Home Depot or Lowe’s you’ve seen increased prices across lumber, piping, and virtually every building supply. When it comes to appliances there’s virtually no predictability on delivery at this point. Price increases on commodities do come down… but processed materials resist that decrease. ?

Whether those materials are processed lumber with increased labor supply costs, tariffs, increased demand due to shortages or you’re talking about piping which ties to petroleum costs we are in for long term price increases that are unlikely to shift down to original pricing levels.

Increased costs from lumber, piping, and appliance companies from price hikes have reduced from peaks this summer but they are not dropping anywhere near the prices early in 2021.?And those companies supplying these goods know that demand will remain high especially with rent prices growing by 10% this September.?

No supply discussion would be complete however without discussing the housing supply and skilled labor shortage.?According to FreddieMac the housing market is short 3.8M units needed to meet US demand. ?Combine this with the Labor shortage of an additional 740,000 workers needed per year to keep up with housing demand and constraints between 2022-2024 and reduced suppliew will keep out first time buyers despite notable rent increases of 10% in September alone while existing home prices increase inversely to supply constraints. *News press 11/13/2021

Until major intervention in Oil, Lumber, and Labor prices hit the market supply chain issues, and home starts dramatically increase, supply chain costs will drive up housing prices by double digit increases over the prior year. Combine this with the fact that both Oil and Lumber are tied to the Global Warming talks and you can expect even further cost increases to occur and house prices to grow by 20%+ in 2022 alone.

WEALTH PRESERVATION

US Billionaire wealth has grown $2.1 Trillion since the start of the pandemic, a 70% increase since March 2020. There are now 745 US billionaires up from 614 in March last year and their wealth is 2/3rds more than the $3 Trillion held by the bottom 165 Million Americans. *Forbes, Federal Reserve.

Wealth preservation is a study in human behavior. ?Contrast the thought to a Dragon with a horde of gold where the gold is primarily stock market investments.?As of October the wealthiest 10% of American’s held 89% of all US stocks which represents $43.1 Trillion of the $48.5 Trillion dollar US Stock market.?Considering that the top 25 billionaires represent just $1.6 Trillion in wealth… that’s an incredible amount of money that would want to move somewhere if the stock market seemed an instable investment… especially if 184 of those billionaires made their money through finance and investments.

And we’ve already seen that wealth preservation effort in action as wealthy people become more and more uncertain that stock market values only go up.?Gold is at $1,865 per ounce at the time of this posting, Bitcoin hit another record high two days ago at $68k per coin, and the average price of a home has increased from $389k in 2020 to $408k in 2021.

Real estate has always been a diversification and wealth generator with over 90% of the US’s millionaires coming from real estate.?Bill Gates is America’s top private farmland owner with over 242,000 acres of land.?Right now, the only people calling more than car warranty providers are hedge funds reaching out to see if you’re willing to take a cash offer on your home.?Personally, while assisting a friend in her home search before we could get an overnight contract with loan to the seller the buyer received four cash offers all higher than the asking price.

Hedge funds are diversifying to real estate to protect themselves from a market retraction.?Elon Musk has sold over $2B in Tesla stock and options in the last week. Where is that money going??Wealth transfer to real estate and the pace of that diversification historically only increases with market uncertainty.?Money goes to where the gains are projected. ?

CONCLUSION

While landlords might be suffering from months of non-payment and lose their homes to foreclosure, banks are all too willing to help transfer those assets to the $5T in additional wealth from billionaire clients.?

The monetary supply historically indicates that we are in for notable inflation with increased consumer cost projections coming out daily.?

Supply costs and Labor costs are increasing year over year by 20%+ of the home price while home demand is being outpaced by available supply.?

The communications for home purchases are outpacing car warranty calls and when digging into those requests these calls represent hedge funds diversifying.?

Crypto and Gold are increasing in price along with real estate denoting a preliminary diversification flight from the stock market.

Ultimately, there are just too many reasons why real estate will increase in price and no clear reason why it would decrease other than price growth.?A price growth easily explainable by supply / demand curves and material and labor costs. ??For those people in Seattle you may recall the California flight of the 2000’s and many would love to purchase that $800k home now that was $200k back in 2001.

Millennials, just hold your nose and get a good home before a billionaire sells you one two years down the line at twice the price.

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