The Expert Podcast

What does the future hold for property prices, housing affordability, and even the volume of homes available? Well, this is a canary in a coal mine right here. Home building permits are falling, and the National single-family home building permits are down 12.8 percent year over year. This is huge. Even at the rate before this decline in building permits, there was a 5 million home shortage from what is needed to satisfy the demand of the market. As interest rates went up, as building prices went up, and as availability of labor declined for building homes, construction of new homes, especially spec houses, plummeted.

What that's going to do is create even more of a shortage of homes in the coming years. If there was already a 5 million houses short and the population is going up, a 12.8 percent reduction in building permits is only going to make matters worse. In fact, in order just to keep up with the demand, home building permits probably had to go up 12.8 percent. So, it went down 12.8 percent. You add those two up, and that's like a 25 percent reduction in the catch-up of new homes being constructed. We predict that by the end of this decade, by 2030, there will be 10 million houses short of what's needed to satisfy the market.

No matter how you slice it, interest rates up, home prices up, that's not going to allow for the house value average to crash. It’s not. There may be some softening in certain markets over the next year or two, but in the long run, unless construction goes up dramatically, there’s going to be a shortage of homes. It may be that owning a home, living in a single-family home, is a rarity. It’s a luxury, it’s only for certain types of people. It’s already getting to that point now. This is a kind of hidden secret crisis waiting to happen—it’s a silent crisis. There’s already affordability problems. That’s all over the news, and people are talking about solutions and building houses, but the proof's in the pudding—the numbers aren’t there. There’s not enough labor to build the houses, and even if there was, there’s not the financial appetite for building companies and developers to build speculative homes. There’s not enough people out there commissioning new homes to be built.

Most people don’t want to hire a builder to build a new house from scratch; they want to move into a house that’s already constructed. But builders don’t want to build a house on speculation because they don’t know if they’re going to sell it. They don’t know if interest rates are going to go up more, if housing prices are going to go up to where they can’t afford it, or if the market’s still going to be there. So contractors aren’t really out there trying to build new spec homes, but most individuals aren’t wanting to buy a piece of land and hire a builder because there are a couple of reasons. First of all, people want to move right away—they don’t want to wait a year. Second of all, the financing and funding of that project is a lot more difficult. If you buy an existing single-family home, you get a mortgage, even though it might take a month or two to get through the underwriting process, you can move into your house. Building a house requires layered financing capitalization. You have to get a construction loan, convert it to a permanent loan, and you don’t know what the rates are going to be. Most people don’t want to go through that hassle—it’s a lot harder to qualify for. So, building a new home has a lot of obstacles where the builders don’t want to build spec, the buyers don’t want to build.

Home building permits are down 12.8 percent, and it’s going to go down even more as interest rates stay where they’re at and as the economy deteriorates. So whatever your position is in the construction industry—if you’re a builder, an employee, a developer, or a home buyer—it might be good to make your plans based on the fact that there’s still going to be a shortage of homes in the next two or three years. What plans those are, it’s up to you. If you’re a builder, maybe you plan on accumulating some land that you can build houses on. If you’re a home buyer, maybe you work with a builder to build you a house from scratch. If you are an employee, maybe you figure out a way to get the maximum amount per hour.

Look, we have some colleagues in construction companies that pay 80-90 an hour for reliable, qualified help. You can’t make that money if you don’t show up and you’re not good at your job, but I can guarantee you, if you’re very, very good at simple things like framing, roofing, even slight project management, you know, you can be six figures. You could work yourself into a 200,000-dollar job easily. So, you can consider that as well. What if you’re a supplier? Same thing—the building is down, your volume might be down, so you might have to make it up on margin.

Put some comments below, let us know what you think, and plan accordingly.