The Expert Podcast

So how many more homes are needed in the U.S. to cover the current market? Well, here's a good example: three million people in the U.S. are renting even though they're making $150,000 a year. This is because home prices have gone up dramatically in the last few years. Even if you make $150,000, it might be tough to buy a house, especially with the current interest rates.

You might think, "How could that be true if you make $150,000?" Well, think about it: if a house costs, let's say, $450,000—that's the median price for a house right now—in some markets, it's $500,000 to $550,000 just to buy anything halfway decent. That’s going to give you a mortgage payment at the current rate of about $5,000 a month, or maybe $5,500 once you factor in taxes, insurance, and all the other costs that come with owning a home.

For $5,000 a month, you need to earn $8,000 a month to take home $5,000 after taxes. $8,000 a month is roughly $100,000 a year before taxes. So, if you make $150,000, two-thirds of your income would go to paying for your mortgage on a $500,000 house. That’s why three million people like that are still renting—because it’s tough to afford $5,000 a month. You could probably rent a place for $3,000 to $3,500, whereas buying a house might cost a lot more.

Plus, you're going to need to save up $100,000 to $150,000 to come up with a down payment. Even a 20% down payment on a $500,000 house is going to be $100,000. How much are you going to save if you make $150,000? Even if you save 20% of your income, that’s $30,000 a year. It would take you four years to save up enough money to buy a house.

This is why new home construction is drastically needed—there are not enough new homes being built, and that demand is not going away. Even though home prices have gone up and purchase volumes of real estate for single-family homes have slowed, the market isn’t going to crash. There are still all these people—three million people renting while making $150,000—and many others who want to buy houses.

Beyond the high-earning renters, there are also people who are already in homes but want to upgrade. There’s still a demand for homes out there, regardless of rates and prices. Anecdotally, one story from a report highlights an accountant trying to save for a down payment while living in a two-bedroom apartment with his son. Another example is a 30-year-old flooring business owner who wants to buy a house but can’t afford it.

High-earning Americans are more likely to rent than in the past. This is a very important trend for builders and contractors to note. Despite the challenges with prices, interest rates, and availability of builders or staffing, the demand for homes is still there. However, it’s not going to be anytime soon that there will be enough homes to meet this demand or fulfill the need for single-family ownership and primary residences.