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Interactive Chart Showing Widespread Rise(s) in Home Prices Since Pandemic


DooDiligence
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What one really needs to ask themselves is what stops this? Me, I looked at what it took to stop the previous housing bubble. And despite the romanticism through Michael Lewis type stories....the truth is that shit didnt blow up until quite literally dozens of really whacky and downright outrageous risk related actions/events occurred. Almost none of which we have today, and almost none of which we will even begin to see for at least a few more years IMO. There is nothing I have seen in my investing life that is as certain as solid, if not spectacular returns for the foreseeable future for housing, well located land, rentals and well run builders.

 

As an individual, if you have resources and good credit, you can do some pretty spectacular things with real estate. If you're a company, liquidity is even easier to come by and the returns are just too good. They arent wildly speculative stock market returns, theyre cold hard cash returns driven by rental rates and supply demand imbalances that won't get solved for a decade, at least. Only real way to solve this, is to loosen regulation and open the money spigot for lower/middle income. "Level the playing field"...In which case, to infinity...and beyond!

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Buffett on housing crash in 2010: "We had more supply than demand for many years, three or four years in housing. We produced 2 million housing units a year.  We created 1.3 million households [a year].  Result trouble. ... If we would blow 3 to 4 million houses today... If you have inventory overhang, you need demand to be above supply for a significant period of time to work it out. "  Source: https://buffett.cnbc.com/video/2010/01/20/buffett-a-bad-number-for-housing-starts-is-good.html

 

Since then, household formation rate hasn't changed much.  According to https://fred.stlouisfed.org/series/TTLHH, it has been around 1.09 million households a year from 2010 to 2020.  According to https://fred.stlouisfed.org/series/TTLHHM156N, it has been around 1.27 million households a year from March 2010 to March 2021.

 

We are now producing about 1.6 million housing units a year. See https://fred.stlouisfed.org/series/HOUST.

 

What do we think will be the the peak production rate for housing units a year this time? 

Edited by LearningMachine
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Housing units per year is too simple. You can build houses in Latimer County Oklahoma all day but you you cant in Bergen County, NJ or Palm Beach, FL. Further there's conversion from renting to buying that can occur. Inputs, especially labor...will also make it awfully hard to meaningfully pump out more homes in the near term. 

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You may not be able to build exactly in those locations but could build a little outside.  You can even buy new construction in the wider Palm Beach area and Bergen County area :-). See  https://www.newhomesource.com/communities/fl/palm-beach-county-area and https://www.newhomesource.com/communities/nj/bergen-county-area

 

The desire for new construction is strong enough and hybrid/remote work is possible enough this time that more higher paid worker families are willing to drive out this time than in the previous bubble.   Builders are saying the same thing - order books are through the roof. 

 

After pushback from workers on making them come in few days of the week, Google is now predicting 20% of its workforce will move to a different location, another 20% will switch to working remotely, and remaining 60% will come in few days of the week.

 

Now to handicapping. 

 

Since 2010, we have formed up to 11-14 million households.  According to https://fred.stlouisfed.org/series/TTLHH, we formed around 10.9 million households from 2010 to 2020. According to https://fred.stlouisfed.org/series/TTLHHM156N, we have formed 14 million households from March 2010 to March 2021.  Let's go with 14 million.

 

Since 2010 we have produced roughly at least about 11.5 million housing units according to https://fred.stlouisfed.org/series/HOUST.  

 

14-11.5 = 2.5 million housing units short.  However, we had an excess supply of 3 to 4 million housing units.  The 2.5 million shortfall brings excess supply down to 0.5 to 1.5 million.

 

For us to get to 3-4 million excess housing supply this time, we need to build an extra 2.5 million housing units beyond demand.  At 1.6 million housing unit rate run rate that is only 0.3 million above demand of 1.3 million households created per year, that could take 8 years. However, I think we should hit 2 million housing unit production in some time, at which rate it will take 3.5 years. 

 

Now, we may not need to hit 3-4 million excess supply this time.  Peak might be sooner or later as we are already at 0.5 to 1.5 million extra supply and extra-supply is a little more useable this time due to hybrid/remote work compared to previous bubble. 

Edited by LearningMachine
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does anyone know if mortgage lenders will take into account the income from child tax credit? I would assume they would not. if they do, then at max DTI, every family w/ 2 kids just gained about $50K of mortgage capacity...14% of the median home price in the USA. <--nevermind, bad math and they definitely don't. 

 

I am not super bulled up on HPA, but the tailwinds are real. in my local market things are kind of reaching a bit of a ceiling it feels w/ some buyer fatigue (which is understandable as a $1mm house 2 years ago is now $1.3mm, even beltway bandits have their limits). 

Edited by thepupil
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Bull markets dont mean straight up, forever, nonstop. Things can slow down or take break; consolidation is normal as are ebbs and flows. What stops it is the question. We can talk all we want about every perceived risk, but we've seen first hand in Canada has things are likely to play out. What poses and then produces a grave risk to housing? IMO, nothing on the horizon. Mortgage rates are sub 3 and the automation of a lot of the process is further making it easier for the big money institutions to take down SFHs. Theyre already gobbling up MF developments. In a way its an inequality play as well. Do folks really think there arent droves of buyers waiting for a 20% pullback in a good market?

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i am in general agreement, and I'd say the pullback people are waiting for is much lower than 20%! 

 

I think Canada and Australia are different than US though because they only have a small number of real cities and are even more house crazy than americans, but I always keep the Canada case in the back of my mind whenever I get tempted to cash out and rent lol. 

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I think for good areas we are very much the same as some of those places. Anecdotally, many of the Bergen County and Westchester area stuff I am familiar with, didnt even go down during the GFC. WFH IMO kind of softens the blow for those tertiary or historically boom/bust cities to a degree because it adds the incremental buyer. Im not sure how to quantify this in a meaningful way, but the tailwind for lets say Phoenix, has to be greater than it was in the past in large part due to this. 

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