Three Reasons Why there is a Lack of Housing Supply in Your Area
As a real estate professional since 1998, this has been the most challenging year to find a home for both a buyer and a renter. Soon as you put in an offer, it is gone within minutes. The real estate market nationally in 2022 has been very frustrating to a point that some are beginning to sit it out and wait until next year.
What are some of the factors that caused this crazy off balance in supply and demand? There are several but here are the top three I see as an insider:
The Takeover by Corporate Investors - Around 2013, Hedge Fund backed companies and then later online Fintech companies like Open Door, started flooding the market and buying up any available home in hot and growing areas like Atlanta, Charlotte and Austin. Flush with stock market and venture capital money in hand, they bought homes in bulk first from foreclosing banks, then direct from individual sellers with the promise of quick closings with no contingencies.
Quickly, these corporate investors collected an inventory of thousands of homes that they either fix up and sell or keep and rent to build their residential portfolio. Unfortunately, this squeezed out first time homebuyers who could not compete with all cash buyers that can close in a matter of weeks versus obtaining a mortgage that can take a month or two. This also cut down on mom-and-pop investors that would buy a fixer up and sell to a new homeowner or keep and rent out to others in the community. Mom and pop investors could not compete with the heavy cash being thrown around by the corporate investors.
This created an inventory problem because now asking prices are up because of the lack of supply and buyers have a high chance of not getting an offer accepted if a company like Open Door comes in with an all cash and quick closing offer.
For more information about corporate investors in the Real Estate Market, check out this piece that ran in 60 Minutes
Instead of Rental Properties, there are more AirBNBs - Once again after 2013, the home sharing app AirBnB took off and not only gave hotels a run for their money, it created wealth for landlords who would rent their homes through the app. If a landlord was renting a two bedroom townhome for $1,200 in Atlanta, now they were getting as much as $6,000 to $7,000 per month sharing the same townhome through AirBnB.
Quickly, there was a shift from mom and pop investors buying distressed homes, fixing them up and renting them out, to investors buying the same distressed properties to place them on the app. It was great for a traveler to have the option to stay in a home instead of a hotel while on vacation, but it came at the expense of a potential renter.
Faced with the option to make either $1,200 from renting out a home and risk a tenant getting evicted or making the potential of over $5,000 per month from sharing the home on that app, most investors chose the app. Now, most metro areas face an over saturation of properties on AirBnB's and not enough properties for renters. It has gotten so bad that many metro areas are placing restrictions on AirBnB's
Take a look at how over saturated the Atlanta area is with AirBnB's
Lack of New Homes in the $250,000 to $350,000 range - Taking California and the NY Metro area out of the equation, most first time homes nationally were in this price range. This was my sweet spot when I was a full time realtor. Before the real estate market crashed in 2008, there were several new home developers that built subdivisions that catered to this market. Now, builders are trying to maximize their profits and get as much money out of the land that they are developing.
Most new homes are being catered to the luxury market. New home developers, on average, are building homes from $600,000 on up. This makes it unaffordable to the average first time homebuyer that now have to come up with a higher down payment and will have most of their monthly income going towards their housing costs. Home affordability is at an all time low.
If you are looking for an affordable home in the $250,000 to $350,000 range, you are now faced with hundreds of other home buyers at an open house, the likelihood of a Corporate Investor buying the house up from under you, or buying a new home for $600,000 and you can hear your neighbor snore at night because the houses are built so close to each other.
Any relief in the future? With interest rates going up, that may cool the market down and bring more inventory to the supply. Prices will come down to affordability because people will not be able to borrow more for a house. Will the government reign in the corporate investors? Not if they have good lobbyist in DC. For renters, more inventory will be coming to the market because the over saturation of Airbnb's and new regulations will convert those homes back into rentals
Carl Agard is the Publisher and Editor in Chief of Boss XL Magazine and the Author of the new Book "Financially Surviving COVID19 (Finding Gems in the Real Estate Market)"