Are We In a Housing Crisis?
Are We In a Housing Crisis?
It’s been really easy for me to be loud about the importance of buying real estate the past few years. Equity has been on a steady incline for the last ten years across most of the country. The shift out of the 2008 housing market crash started around ten years ago and has carried an upward trend ever since. When I got into the real estate world (mortgage industry) in 2015, rates were steady- 4% might seem way too high right now, but it was a solid rate pre-COVID- and you could take advantage of great neighborhoods being affordable. The shift over the last year and a half has been stark and steep. For most of 2021, I’ve been of the opinion that there has to be a reversal. A reversal of inventory dragging it out of the gutter that would in turn give a reversal of pricing and escalation issues. Turns out, we’re still in the squeeze. And it’s not going away. The last time I published something was back in March and the last line was “buy as soon as you can at the lowest price you can”. It was sage advice.
A couple of years ago, I helped some out of town clients get under contract on a new construction house in Ladd Park down in Franklin. 3800 square feet house for $633,000. The home was wonderfully built, beautiful inside and out, and was ready to close end of February of 2020. Very long story short, COVID shut down the IRS, which affected our loan, and we ended up not closing. That same home would easily be a million-dollar sale in the current climate. In a little less than two years, that is a 40% growth. And now we’re still looking for a house and their budget has had to double. Imagine if your boss walked into your office today and said, “Hey, if you invest $75,000 into this stock today, in two years it can turn into half a million dollars”. That is a life changing investment, and any logical person makes that move (if they have the funds on the front end obviously). But that’s what buying a home has been, in my opinion for the last couple years in the middle Tennessee market. I mean, we bought in a not-so-great part of Nashville four years go and had an out of pocket cost of around $10,000 which, at the time, was just about every penny that I had to my name. We’re now close to over 20x our investment only four years later. You might ask, “Isn’t having a mortgage payment super expensive?” We paid $1,800 a month for our first apartment that was about 1,200 square feet- that is expensive. And just as home prices have squeezed upward, so have rent prices. So let’s dig into rent.
Every agent has thoughts on renting and why it’s dumb. It’s our job to do so. If you sell fitness equipment, it’s smart for you to speak against fast food. Even though most people in the world enjoy it and it’s a part of life, it is counterproductive to your line of work. A couple of years ago, it was pretty easy to just rent a place in an area of town that you’d like to live and get to enjoy just implanting yourself in that neighborhood’s lifestyle for 12 months. That’s why we got our first place. Even though we knew it was a bit overpriced we wanted to be in Five Points and loved our time there. But it’s getting extremely hard to find places to rent that aren’t exorbitant. That’s due in part to investors buying over the last year in an inflated market. Rent prices directly correlate with housing prices. Investor buys fixer-upper for $50k more than he would have a couple years ago? They’re going to charge $500 more a month for that house. Not because all landlords are greedy or capitalism needs to die, it’s just how money works. Tie that into the entire world basically moving to a remote economy and everyone having the freedom to live wherever they want, and rent prices are just going to continue to escalate. Now onto the question and the point of all of this- is there an end point where this stops?
Usually when I write these posts I try to do a couple of things- present a problem, discuss the problem, and go over what I feel like is the solution. However, this year, I’ve regretfully been pretty short on solutions. It’s been a lot of conversations of how things are going to go and where they improve which result in me throwing out semi-confident answers and them turning out to be wrong. I can just about guarantee you that most agents have found them in the same boat. If you’re not a listing-dominant agent (meaning most of your business is listing and selling property, not on the buyer side) or an agent that works primarily with cash investors, you and your clients have had to fight and claw for every win. In Williamson county this year there has been a race to $1,000,000 for the average price. It’s been a literal gold rush that’s been super easy to see coming. Late spring you started seeing average weekly prices cresting $800k, and then $900k a few months later. I thought that at that point you would see some tapering. That being, you’d begin to see stuff under contract at slightly below the pushed up list price. It literally has happened one time in the last four months and even that was 99.5% of the list price. In summation, I have zero answers for when it’s going to stop. I’ve been hanging on and along for the ride all year just the same as all of you have. It’s been rough, unrelenting, and it’s not going anywhere. So, what’s your solution? What’s the fix? If you have the answer, it’s a million dollar one.