The Vanishing Dream: Why Starter Homes Are Disappearing

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So we might finally have our answer to how many houses short we are. We've talked in prior videos about 5 million, 3 million, and 6 million. It appears now that there's 7 million homes short for the US housing market—that's how many more houses are needed versus what the current inventory is. How do they calculate that? They calculate that by how many people actually need homes that they can afford and move into households.

How did that shortage happen? Well, it all started back in the early 2000s, 2001, 2002, when some laws were passed that made it easier for people to get mortgages if they did not qualify. So, a lot of people bought houses that maybe they couldn't normally get a mortgage for. Some people bought two or three homes, and they either flipped them, rented them out, or maybe kept them empty. Then you had the housing crash in 2008. In that housing crash, you saw a lot of these homes become foreclosed, and they were off the market. The more insidious effect of that is that builders stopped building. A lot of builders went bankrupt, and a lot of them that had speculative homes couldn't sell the houses, so they stopped being builders.

From about 2007 to 2017, builders were very, very gun-shy about building homes. They built the bare minimum. A lot of times, they didn't build speculative homes; they only built homes that were pre-sold. So, you had this housing shortage build up over a decade—really more than that. Then you had COVID in 2019 and 2020, where people who were renters wanted to buy homes. This led to an inventory shortage. That's the combination, the perfect storm of events.

What about starter homes? It's an important factor. Here's another article: Are we finished with starter homes? What in the world happened to the starter home—low square footage, relatively cheap, and not full luxury, but at least livable? This one home that's for sale for $800,000 is 776 square feet. It was purchased 20 years ago for $300,000. Now, even 20 years ago, that was not a starter home—$300,000—but there are no starter homes now. If you want to buy any kind of decent house in most markets, you're going to spend $500,000 or $600,000. So, what do you do? We've talked about it in other videos. I think the best suggestion and advice is to buy the cheapest house you can stand, even if it's not your dream home. That way, you're in the housing market and can ride that wave.

What about the housing crisis? The National Association of Home Builders—this is right in your industry—sky-high home prices and housing shortages are here to stay. "Here to stay"—that's the key word. Unless us builders find a way out, and that's building our way out. Of course, the Association Home Builder CEO is going to say you should be building, but we should be building.

So, if there's a 7 million home shortage, how many homes per state is that? That's an average of 150,000 homes per state on average. Some states are a little smaller; some are bigger. So, whatever state you're in compared to the average, take 150,000 and adjust accordingly, and you'll find out how many homes need to be built.

How can you get in on that as a builder? Well, maybe not. Here's a guy in Boston—he's building an army of robot construction workers. This guy has a company called Suffk, and he's created a robot construction company starting with commercial. The reason why commercial is a more cookie-cutter approach is that the floor plans on commercial properties are the same for one floor to another on a multistory property. Once he works out all the bugs, he's going to apply it to residential. So, that's what's happening in the construction market.

On the surface, it looks like every other market cycle: you see houses, you see homes being built, you see Tyvek, you see all these things happening. But then again, this may be different. Starter homes don't exist, so first-time buyers can't get into the market. Interest rates are still high—they bumped up again, they backed down a little bit a few months ago, but now they're back up. And you have robot construction workers.

What does that mean for the building industry, for the real estate industry, and for construction professionals as a career path? I know you have an opinion about that—let us know in the comments.

The Vanishing Dream: Why Starter Homes Are Disappearing
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