The Expert Podcast

Housing prices are at the top of the news almost every day now, and any resident citizen of the United States has some vested interest in the housing market whether you're a homeowner, renter, or want to be a homeowner. The question is, what's going to happen next? The stakes have not been higher for understanding the future of real estate at any time in U.S. history than today. If you are currently a homeowner, the question is what do you do about moving, not moving, selling your house, buying a new house—more importantly.

If you are a renter and you're thinking about buying a house or want to buy a house, the question is should you be scared about the current prices? Should you be scared about the current market, and what should you be scared of? Should you be scared about getting in and paying too much or should you be scared about not getting in and being locked out? This is where opinion comes in. Everybody can have an opinion. You will see news stories with pundits that'll have an opinion one way or another. Many times your own personal ideas or intentions or plans will fall in line with a third party opinion and sometimes you'll use the opinions to support what you've already decided on.

This is where it's important to not necessarily just go with an opinion but look at the facts—what's behind the opinion? What is the data that's driving an opinion? You can agree or disagree with the data but at least you are now making a decision from hard cold facts and science, not from emotional opinion. So let's take a look at some of the opinion and predictions and what is behind them.

First, we're going to look at an opinion from a business journal in Texas that says no let up in sight, housing prices will rise for five to ten years. It's pretty extreme, it's a pretty significant perspective to have, but why is this person saying that and who is this person? Well, this person is a managing director of ETF Advisors—they're an investment company—and their prediction is based on supply and demand, and we'll talk about that in another source momentarily.

They're looking at how many people need to buy a house—not many people want to buy a house or maybe, you know, could buy a house. Look, houses are not like buying, you know, a shirt on Amazon. It's something that's a necessity—it's a roof over your head—so the demand is pretty easy to measure: how many people are there that need a house and then how many houses are there? You can measure that pretty straightforward. So let's look at that in more detail.

Well, the provocative headline here is: Will the middle class survive a housing shortage? And they're saying it's nationwide, not just regional. And what is the data? What are the facts behind this ominous premonition? Well, here it is right here. Right after going through a bunch of stories of people that had a tough time getting a house, the data is buried in paragraph six: home shortage of six million. Housing shortage occurred only in certain regions, but underbuilding is in every part of the country. The report from National says that there is a shortfall of between five and a half and seven million houses.

That's how many homes are needed to fulfill the current market for people that need a house despite an average of 1.5 million new housing starts. You might think, well just take 1.5 divided by six—that's four years. Well, not really, because most of those houses being built are fulfilling new demand for houses, not existing demand. New construction alone would need to accelerate to a pace that is well above the current trend to more than 2 million housing units per year to close the gap. Here's the kicker:

Even if building were to continue at the current level—the most rapid pace in a decade—it would still take 20 years to close the five and a half million gap, and that's at the low end, and that's 20 years. So there's your math on what's happening with the market.

Let's see what else there is to look at in support of that same math: housing markets, housing market experts forecast limited inventory, high prices through 2024. Well, that sounds like an understatement if the last article said it takes 10 years to catch up. 2024—that's only two years away. It says the rapid acceleration might slow, but low supply will still put demand up. Who says this? Who's behind this opinion?

This is a poll from hundreds of real estate experts around the country in different businesses. It could have been mortgage brokerage, insurance, investment, and they are predicting based on what they see what's going to happen. And here's the data that goes behind that. Here's the percentage of respondents, how many think when inventories kind of return to that monthly average: four percent said this year, a third said next year, and then after that everything was 24, 25, even 2026 is higher than this year. So there's your data for that perspective.

What is the psychology behind buyers of real estate? Well, here's an example: this person said they bought a home and it created long-term financial stability in a number of ways, and it talks about the ways that it creates stability. It changes your financial perspective, it changes your time horizon, it adds equity to your net worth. Most people's net worth comes from savings unless they buy a house and then the home equity dramatically increases your personal net worth. Renting isn't cheaper, and it isn't. If you're renting for $2,500 a month, you could buy a half a million dollar house for $2,500 a month. It adds to your credit, it makes retiring easier because you're either your home is paid for when you're 65 or 70, so you don't have a mortgage anymore or payment for rent and you can retire, and it also allows you to take risks because you have that cushion—you have that known fixed price—and it changes your time horizon for what you're planning on.

So where does that leave you for making plans or predictions? Well, you have to make your own decision about what to do, but if the real reason that you're not buying a house right now is because you don't think that the market is going to keep going up, well there's some data that supports the opinion that it is. If the real reason is that you're afraid to or you can't afford it or you don't have the credit and you're using price value as a justification, then you might want to fix the first problem because it appears from what many people are saying that it's very likely—nobody has a crystal ball, nobody knows for sure—but it's very likely the probability is higher that the prices will continue to go up at the least. Almost certainly they're not going to go down because if there's six million houses short in inventory, that's not going to change overnight.

Even if the builders, the home contractors, the general contractors ramp up and crank up production, it would take 10 years to catch up assuming the market demand doesn't even go higher. If there's more people in the market, it might take 12 or 15 years.

From an insider's perspective, we also own a company that's a general contractor builder. We see it in our industry—it would be impossible to ramp up production anymore even if the builder wanted to because there's supply chain issues for materials. Lumber is hard to get—even if you want to pay the higher lumber prices you can't get all the materials you need to build houses any faster. The permitting process is taking longer because municipal budgets are cut and the governments can't turn out permits fast enough. Labor's in short supply because there's not enough people who are skilled trades to actually build the houses.

So even if builders wanted to accelerate, turn on the tap, and crank out houses, it would be impossible to do so. That wishful thinking in the article that said well builders could ramp up production and get it done in 10 years—that's probably not going to happen. It's probably going to stay at the current level, building 1.5, 1.6 million houses a year, and maybe take 10 years to get caught up on the house inventory.

Do you want to wait 10 years to buy a house? Look, in 10 years you could be a third of the way into a 30-year mortgage paying off your house, and your home might double in 10 years. Look, a five or six percent increase in home values turns out to be a double in 10 years—a double of value in 10 years.

So if you buy a house today, if the rate of increase of appreciation of inflation of houses goes up five percent a year for the next 10 years, that house will be double. So if you're waiting for the market to catch up so that the prices go down in that 10 years, you're waiting—the prices are gonna double anyway, even if it's five or six percent. And five or six percent appreciation on the house is what happened before this high demand kicked in. So it might be 10 a year, 15 a year, it was 20 last year.

Look, we don't have a stake in the opinion—we don't sell houses, we're not brokers, we're not realtors. It doesn't matter if you buy or sell a house. We're just trying to point out the facts behind one particular opinion that the market's probably going to keep going up.

It's a tough pill to swallow if three years ago or two years ago you decided, well, the price went up, let's wait, and now it went up even more. It's almost like you missed out on that bump up so you might want to wait even longer. It doesn't matter what happened in the last two years. It matters what happens from this day forward, and if it's likely that it's going to keep going up, make the decision accordingly.

If you don't think that or you don't see the numbers the same way or see the math, that's fine—you can make a different decision, but you have to go by probability.

What if you went to a casino and the blackjack table said, look, you have an 80, will give you 90 odds of winning versus the current odds, or a slot machine with 80 odds of winning versus 2 odds whatever they are? It would change your opinion. And these are odds that have a much more significant effect on your life, especially if you could buy a house and have a cheaper payment every month than your mortgage anyway.

If it's a win-win, the idea of buying a house is it'll work out good for you if times are good, even if they're not.

So there's some data and facts behind the opinions of the real estate market. Everybody has an opinion, anybody can have different opinions. What you need to look at is what are the facts or predictions or presumptions behind each opinion that you're considering because some people's opinions just could be based on garbage data or skewed intentions.

If you have a real estate agent that says, yeah, we think the prices are going to go up, well, they sell real estate—they probably have a reason that it's good for them if it goes up. But in reality, this day and age real estate agents don't have a benefit from prices continuing to go up. Real estate agents benefit from higher volume, not from higher prices. The more houses that are sold, the more real estate agent makes.

A higher price on a house makes you a little bit more on commission, but if you only sell half as many houses and make 10 more commission, it's not going to benefit you. Real estate agents and brokers want to see a higher volume of sales. If they're predicting that the prices are going to go up and volume is going down, that's against their own best interest.

So if you see a business person predicting something that is not going to help them, it's more likely to be true because it's not skewed by their own wishful thinking or their own self-interest.

So look at the facts. Don't take anybody's opinion, don't take our word for it, don't just blindly follow any opinion. Look at the facts behind the opinions so you can make the best decisions possible.