The Expert Podcast

So the big question on everybody's mind is: what's going on with real estate prices? Whether you're a renter, a buyer, or someone who wants to buy, what happens to real estate prices in the future will have a significant impact on your finances. If you already own a home and you're not looking to move anytime soon, some of this may not have as much of an effect. However, there are hidden and sneaky ways this can still affect your budget in the future, even if you already own a home.

The argument we're going to make in this video is that the official position and forces behind the market are intending to reduce the amount of real estate owned by consumers. They aim to decrease the number of single-family homes owned by consumers and convert more individuals into renters instead of owners. Over time, the pressures in the marketplace will gradually try to force less homeownership and more rental landlord-tenant relationships. These are the factors indicating that homeownership is becoming a thing of the past.

Factor number one: Many of the new single-family homes being produced and constructed in the marketplace are being purchased by institutional companies. Large investors like BlackRock and other financial institutions are buying up large tracts of single-family homes for the purpose of renting them out. In fact, some large builders are being consigned and tasked by investment hedge funds and other financial institutions to build subdivisions exclusively for rental purposes—not for sale to end users.

There's a great article in Yahoo Finance that suggests you may want to invest in real estate while you still can. It sounds ominous, indicating that at some point, investing in real estate might not be an option. Large investment firms have an increasing appetite for single-family rentals, and buying activity in 2022 shows no sign of slowing down. With an extreme shortage of housing, firms are focusing on acquiring available land to develop build-to-rent communities. Builders like America Homes for Rent, for example, have 12,000 lots ready for development.

For builders, there are advantages to focusing on build-to-rent homes. Building a home for sale involves higher costs, delays, and uncertainties. In contrast, building for rental purposes means having a single customer for hundreds of houses, one closing, and an all-cash transaction. Customization isn’t necessary, making the process smoother and more profitable for builders.

From the financial industry's perspective, renting is more lucrative than selling. If you sell a house to a buyer with a 30-year mortgage, the payment might remain at $1,500 per month for the entire loan term. However, if you rent that same property, you can increase the rent annually. Over five or six years, the rent could potentially double, significantly increasing the rate of return on investment. With a shortage of homes and increasing demand, this model becomes an almost certain profit for financial institutions. Additionally, rental properties are liquid assets that can be sold if necessary.

Another factor is the federal government's exit from the mortgage market. Most mortgages originated in the last two to five years have been owned by the Federal Reserve, which has been purchasing treasuries and mortgage bonds to ease credit markets. However, the Federal Reserve has decided to wind down this program. With $4 trillion in bond purchases and an $8 trillion balance sheet, the Fed's exit will prompt mortgage rates to rise. Although this might cool demand, it won't significantly lower prices. Instead, borrowing will become more expensive, further discouraging homeownership.

Mortgage rates have already doubled, rising from 3% to 6% in just four months. The Fed's sell-off of its existing portfolio will drive rates even higher, potentially reaching 10% by 2024. At that rate, a $400,000 house—a median home price—will cost $4,000 a month in mortgage payments. This dramatic increase will make homeownership unattainable for many, solidifying the trend toward renting.

By 2024, starter homes are projected to cost between $450,000 and $460,000. With 10% interest rates, monthly payments will exceed $4,000. Homeownership will become a privileged status, available only to a select few. Meanwhile, the homeownership rate is expected to drop across all demographics, with the growth in renter households more than doubling that of homeowners.

The shift is evident in large-scale building projects, which increasingly focus on rentals. Single-family homes built for rental use are becoming the norm, while external factors such as inflation, rising fuel prices, insurance, and property taxes add further pressure. Even before interest rates began spiking, these challenges were already making homeownership difficult.

If you're planning for a secure financial future underpinned by real estate ownership, now might be the time to act. Although prices and interest rates have risen, locking in a home at today’s costs could save you from even higher payments in the future. Rental markets are becoming increasingly competitive, with studio apartments renting for $2,500 to $3,000 in some areas. Rural and low-cost regions are also seeing rents climb to $1,500 or higher.

Purchasing a home today offers a significant advantage: your monthly mortgage payment will remain fixed for 30 years. Once paid off, that payment will drop to zero. If you're 30 years old today, by the time you turn 60, your mortgage could be fully paid, leaving you with no housing costs—an invaluable benefit in a market where rents will only continue to rise.