The Expert Podcast

The big story in real estate is what's going to happen with prices and what's going to happen with inventory. Well, here's a really serious overview of this from Yahoo Finance: harsh warning—America needs more housing. This affects a lot of us in the construction industry because we're not wanting to build any new houses on speculation because nobody's buying, right? The fact that nobody's buying may or may not change the price; it just means nobody's going to buy anything. A lack of buyers, a lack of demand, doesn’t necessarily crash the price unless sellers are willing to sell.

Remember, a housing crash requires both a buyer pushing the prices down but also a willing seller. If buyers are on strike and not buying, that's fine, but if sellers don't want to sell either, the price is not going to go down. It’s going to be a stalemate—a tug of war that could last for years. It’s not new. There’s been a shortage of homes available for buyers, even when prices were reasonable or cheaper, and mortgage rates were low. It showed up in the form of multiple bidders on houses because the buyers wanted to buy what’s available.

The fact that the houses have gone up in value and the mortgage rates are higher doesn’t change the number of people out there wanting to buy a house. Look, when there were 20 bidders on a house when the prices were low, that just meant those bidders were willing to buy. There are still 20 people that need to buy a house. Those bidders did not go away. The fact that the prices are higher and those 20 people aren’t willing to buy at that price doesn’t change the fact that those 20 people still want to buy a house. They’re still out there; it just means that the seller is not willing to sell at that price.

So the market still has the same demand—the same number of wanters—it just doesn’t have the same number of willing sellers. That may not result in a huge price crash. Sure, some sellers that were looking to get, you know, telephone-number-high prices for houses might come down a little bit, but they’re not going to go into crash mode.

As real estate broker Brian Lewis said, “Here’s the thing about America: we don’t have inventories. Guys, it’s tight out there right now.” Certainly, there are people that don’t want to pay the price, but there are still bidding wars on some of these houses. That’s proven by talking to Realtors. He has three offers on a property, and I’ve got a property in New York City that was below the 1.5 million mark on multiple bids.

The thing is, it’s going to cost those buyers more money to buy the same property it could have been a year ago. It comes down to monthly payment. Even if the monthly payment has gone up from, let’s say, an average house that was 250 or 280 a few years ago to 420, which is the average price of a house, and interest rates went up from two percent to seven percent, that mortgage payment that would have been $2,000 a couple of years ago is now $4,000. There are certain people that can’t afford the $4,000 or can’t get approved for a mortgage for $4,000. That doesn’t mean they still don’t want to buy a house.

The fact that the price has gone up doesn’t mean the seller is going to say, “Oh, okay, I’ll drop the price down to make you afford it.” The seller doesn’t need to sell. They’re living in the house; they have equity; they have a low mortgage rate, and they don’t need to sell. Certainly, there are some people that will need to sell, but how many are there? There are only 84 million single-family homes in this country. There are roughly 350 million people that live in the country now. Not every person needs a house—some people live in multi-resident households, and some people rent apartments. But still, there are only 84 million single-family homes in the country, and that number’s not going up.

As builders know, builders are not quickly building new homes because of higher interest rates and no demand. So, this is going to hurt the housing market in the future even more than it is today. There are still more people every year coming into the market in terms of people immigrating to this country and new families being produced. If you're not building houses, that demand is even going to increase in the future.

Let us know what you think in the comments.