At the current state it would take only 2.5 months to run out of available houses for new homebuyers to purchase.
This is a new low from 40 years back and it’s far from a healthy economy that typically sees 6-10 months of housing inventory. 2021 is the year where working from home is the new norm and tens of thousands of families are relocating to new cities every month.
Even builders are struggling to keep up with demand with a 10-month wait time for construction. Even though we're in the middle of a pandemic the low inventory and high demand for newly constructed single family dwellings is positive sentiment for real estate.
Today on Things Have Changed we break down the residential real estate trends happening, what this means for the economy, and how it affects you as a future homebuyer.
News [00:00:02] There's about one third fewer homes on the market at any point in time in the last few months, and they're still being driven by some of these fundamental factors of record low mortgage rates, well under three percent still. And just actually the fundamental forces of aging. There's a lot of people entering their 30s right now. There's about three million more people, about 23 million versus 20 million 10 years ago who are in the key age range of 30 to 34. That's the age at which Americans tend to buy their first homes.
Adrian Grobelny [00:00:35] At the current state, it would only take two and a half months to run out of available houses for new homebuyers to purchase. This is a new low from 40 years back, and it's far from a healthy economy that typically sees six to 10 months of housing inventory. 2021 is the year we're working from home is the new norm, and tens of thousands of families are relocating to new cities every month. Today on things have changed, we break down the residential real estate trends happening, what this means for the economy and how it affects you as a future home buyer.
Jed Tabernero [00:01:23] Welcome to THC, where we unpack the ever changing technology economy
Adrian Grobelny [00:01:29] hangout with Jed Shikher and Adrian as we tackle the industries of tomorrow.
Shikher Bhandary [00:01:34] This is things have changed.
Adrian Grobelny [00:01:42] Right now we have the big issue of inventory. I think a lot of people I've heard of open houses where there will be lines of people to get in, to look at the house and then putting offers on houses, a whole nother game. You have people overbidding what the asking prices for a prop for a house. And it's just so brutal and cutthroat that you're having people pay six figures over asking prices of houses in neighborhoods that are somewhat close to that median home price. It's unprecedented, definitely. And, you know, if we take a step back, we can kind of see why why this is happening.
Shikher Bhandary [00:02:29] Yeah, just to point out the the whole supply demand equation in this in housing in general is just so broken. Like there's this crazy stat that every year, like the market is short, like 400000 homes. Imagine that, 400000 homes. So now if that were shot on one end of the equation with regards to supply, that's all obviously going to translate to a higher increase in the prices on the other side of the equation, which is demand. Right. So the prices are high and it's just this constant loop which seems to keep playing out every year where things are higher. Oh, we all our houses seven percent higher. Oh, I guess we still can't afford the house, things like that. Let's take a 70 year mortgage because 30 years don't work anymore.
Adrian Grobelny [00:03:23] The way you look at the supply side for residential houses, as you look at the month supply of available properties. So that basically means out of all the listings available in the market that are for sale available and the current rate that properties are being purchased at, how long would the inventory last? How many months of a supply do we have at the current rate that people are purchasing properties currently? Before I put any numbers out, a healthy inventory is about six to 10 months, that's what that's what we've seen historically. So six months of houses available without any new properties is what's healthy. And what we've seen in the 90s and the 80s, you know, we've had some fluctuations and some shocks in the market. 2008, we saw I don't know how high it got, but in 2008, after that financial crisis, we had a lot of inventory because of all the foreclosures, because of all the people that basically couldn't afford their houses moving out. And no one was really trying to buy real estate because of the because of how prices dramatically fell. Right now, the monthly supply in the nation is two point four months, which is it's it hasn't been that low in about 40 years while here in San Diego, it's even worse being in California and by the coast where everyone wants to move. It's about point seven months. It's not even a full month of inventory here in San Diego,
Shikher Bhandary [00:05:06] dude. One thing to add also, like Jen and I have a friend, her parents, and this is a trend that's apparently playing out across the market where people are overbidding. I know you mentioned, like anyone with a six figure home is getting a six figure increase in the buying price. Like cash is king. And it's it's wild to see that you're seeing such huge auctions out there just for these, like, normal houses.
Adrian Grobelny [00:05:40] It's gotten to the point where it looks like a bubble and you're overpaying so much like like even the appraisers for houses. They're not even able to keep up there. They're having houses over a bit by six figures. And the appraisers are coming in, like I'm saying, this value. And so they're having to go back in and negotiate because they're bidding so high that the appraisers are scratching their heads, like, I would never have appraise this house at that price. But, you know. It didn't get to this just overnight. There there had to be reasons for how we got to this place. And biggest reason, I think, is that.
Shikher Bhandary [00:06:28] Jay Powell,
Adrian Grobelny [00:06:30] I think the biggest reason is due to the historic low interest rates that we have. Its capital is the cheapest it's ever been for houses. I mean, the ability to get a house at two point seven percent interest rate. Whereas last year it was about three point seven percent. So you're just getting all these new homebuyers that are like, wow, I need to take advantage of this low rate. Like this is the time, like I might not ever get a better rate
Jed Tabernero [00:07:04] millennials to its millennials that are buying houses. Ninety one million millennials out there who thought it was a good fucking time to buy a house during the pandemic as well in twenty twenty. So there's a bunch of people who bought houses to try to get away from the cities during this time. But crazy time. What does it mean when you have seven months of inventory left? What does it mean when one side has zero point seven months of of inventory left?
Adrian Grobelny [00:07:34] That means median prices go out of line like I've seen in some zip codes in San Diego. The median price has gone up 35 percent in one year. And just one neighborhood like that's unheard of. Like imagine you buy a house for a million dollars and then next year it's worth one point thirty five million just for holding it. And based on the market's demand and the lack of supply in that area. That's how crazy it's getting in certain zip codes here.
Shikher Bhandary [00:08:07] Dude, I doubt even Facebook goes up 35 percent over the year.
Adrian Grobelny [00:08:11] And and you get the you get the tax tax benefits of 250 K tax free capital gains for living in a house for one year. So, yeah, you're walking away already.
Shikher Bhandary [00:08:22] The crazy thing like Jed mentioned about millennials like for sure, they're looking to get out of there are, you know, parents basements like there's a stat. About 50 percent of young adults aged 18 to 29 live with their parents right now. So this is the highest rate in the last century. So these kids and these kids just want to leave and they're looking out for houses and stuff. So interesting.
Adrian Grobelny [00:08:52] Yeah, I mean, recently, the end of the exact \numbers, but for FHA loans, they had to increase the amount that they would lend on because of this crazy jump in median prices.
Jed Tabernero [00:09:06] Sorry, I don't understand what the seven month inventory means. Oh, so
Adrian Grobelny [00:09:12] in San Diego's zero point seven months and then nationwide, it's right now two point four months. So basically, at the current rate that houses are being sold for, if there were no new listings, so no new houses get on the market, you just we're just working with what's currently available. How many months would it take to sell all the properties? So less than three weeks if there were no no new properties brought on the market in San Diego, everything would be sold out and there would be no inventory in San Diego
Shikher Bhandary [00:09:42] in three weeks. That's crazy.
Jed Tabernero [00:09:45] So I highlight to the supply and demand issue here. OK, so it obviously that stat depends on demand and how much people want to buy residential real estate during that time. Interesting.
Shikher Bhandary [00:09:57] And also, SD is a nice place. Let's not forget, it's a great place.
Adrian Grobelny [00:10:01] Demand is demand is basically the has the historical, you know, how many properties have closed. So that's like how strong are properties being bought consistently.
Shikher Bhandary [00:10:16] So even builders are facing this incredible demand, like they can't keep up. This does this. In Phenix, which has seen a lot of this, you know, second order effects of the pandemic where people are moving to not, yes, home prices are increasing all across the country, but the Delta increase in second tier cities is a lot higher. So in Phenix, there was this I think the largest construction company is has a 10 month wait time for new construction there. So deep, there are almost 100 projects on queue for them right now at any given time. That's why the wait.
Adrian Grobelny [00:11:02] So is this for single family?
Shikher Bhandary [00:11:04] Single family, yeah. Single family homes, not commercial. So it's it's wild out there. And, you know, if construction is is an issue, then that also goes, you know, further upstream, if you want to call it like the cost of goods that are associated with construction prices.
Shikher Bhandary [00:11:27] Right. Construction and and housing prices. And we are seeing huge fallout in the goods, specifically lumber and even metal. That's that's needed for construction. Yeah, copper. Lumber's what up like four X this year or something like that, right? No, it's up. It was double, but I know for like all the like two or three years we had that stat.
Adrian Grobelny [00:12:00] Yeah. It was like the 52 week low for lumber futures was like 250.
Shikher Bhandary [00:12:07] Yeah, yeah. Yeah.
Adrian Grobelny [00:12:08] And it's nine fifteen right now and February.
Shikher Bhandary [00:12:14] So yeah. That we did see crazy numbers like on an average I think it was like 2x the price, what it was before, but 52 week low to high was forex. So four times costlier to purchase lumber which is you know. Yeah. And and why,
Adrian Grobelny [00:12:32] why is that the case? Why is lumber so expensive right now?
Shikher Bhandary [00:12:36] It's just I mean, I don't see too many I don't live near a lumberjack area, but I don't see any lumberjacks, although ejaculatory. But in all seriousness, seriousness, I mean, covid really put a dampener on or a lot of manufacturing. So now when you have this crazy boom in construction and demand, there are not many people. Lumberjacking, if that's a word, but. You'll definitely see the prices increase.
Adrian Grobelny [00:13:08] Yeah, I think definitely supply shock with, you know, covid locking down safety measures, businesses kind of freezing for some time. And also there's a huge demand in remodeling houses right now. People are living at home, working at home. So they're spending way more time at home. And so, you know, in their house, they're looking at things a lot more than usual. And they say, I could get tear down this wall, open up the space, be nice to have a pool. Yeah. You know, all the gyms are closed cement. Yeah. Yeah. That was that was the best investment I made.
Shikher Bhandary [00:13:49] Yeah. So just a note for the listeners. Like Adrian did not want to buy dumbbells off Amazon because those those literally it was like a hundred bucks in dollars and fifty cents a pound. So he goes out, buys a 20, 20 pound bag of cement, mixes it with water in a bucket with a pool in the tank, and I get a 90 pound bag
Shikher Bhandary [00:14:13] and then created whatever that the bar like a prop 130 pound by
Jed Tabernero [00:14:18] metal weights.
Shikher Bhandary [00:14:20] Yeah, you would cement DIY stuff is off the roof. But to add to that, you're sitting in the house, you work from home is the new normal. You want new lights, you want new desks. You don't like what you're sitting on. The couch is trash. I mean, it's not trash, but you want better things because you're spending spending all your life at home and you just and you can justify that. I mean, I you can justify anything these days. So these people are just buying so many things for their house and that, you know, again, second-order effect or direct order effect, more or less, has been like these companies that deal with furniture buying online have just boomed, boomed. I cannot stress that enough because I mean. You have multiple players in the whole space. Obviously, you have the retailers, you go on like Target, Wal-Mart, you know, the low level, they have seen huge increases in the in sales of furniture and how home related goods and on the Top End Restoration Hardware, Wayfair, those companies have just been wiling out like one example, Wayfair, which is basically an online furniture company. They've been around for almost 18 years, had a bunch of restructuring, changed their brand branding like twice, so they have been around for a long time. 2002 was when they started. But. And they had not they weren't doing too well, like pre covid. The last time they made a profit was in 2014, so a lot of pressure on the executive team and suddenly covid hits everyone stays at home, buys carpets, furniture from Weafer online. They have a monster quarter. Sales doubled. Your all your profits for the first time since since 2014, which is around 300 million dollars, like five million new customers in just Q4. So they were just killing it. And the stock, you guys wouldn't believe it. It did at 10x or six months. It went from 25 to 300 dollars that it is right now. So it went to the moon. It's Doege army. So, yeah, like those guys betting on GME and EMC man, they should have probably just sat and bought wafer.
Adrian Grobelny [00:17:10] We touched on demand a little earlier and a big part of demand is. What you have available, how many people are looking to purchase, but then on the other side, we have current homeowners and foreclosures. You know, all of us have been hit hard by covid, earnings have gone down, buying power has gone down, and therefore people have struggles.
Shikher Bhandary [00:17:40] Stonks have gone up.
Adrian Grobelny [00:17:41] Stonks have gone up. But not all of us own stocks like Shiker over here. And a lot of people have been struggling to pay their mortgages since covid hit. A lot of people have had financial hardships and we've had moratoriums where we've delayed the payment of mortgages. For many people, there's about 10 percent of eight million single family mortgages that are backed by the Federal Housing Administration, basically FHA. Basically, they ensure your your mortgages in case you're not able to pay it, since covid started, a lot of mortgages have become delinquent where people have not been able to pay, but they've been delaying the the requirements to pay for their their mortgages. So we haven't seen any foreclosures really happen. And you would expect to see a wave of foreclosures with the loss of jobs, unemployment being what it is right now. It makes you ask the question, when will we see this wave of foreclosures and how bad will it get? Because when you're delaying the payment of these mortgages, you're not just pushing it back three months and then you restart from new you're building up all of that amount that you haven't paid for so many months at once. And, you know, if you're not paying your mortgages. The banks aren't getting paid on these loans. These banks that have these loans are restructuring it, repackaging these loans and then selling them to other people. So there's a trickle effect and a domino effect of people not paying their mortgages that are isn't just going to affect us consumers. It's going to affect banks. It's going to affect businesses. It's going to affect landlords, land owners. So it you know, it really trickles down to affect a lot of people in the economy.
Jed Tabernero [00:19:51] Wait a minute. The 2008 housing crisis. Yeah, it sounds pretty similar. People couldn't pay shit. The financial markets were affected. It sounds like what it is, except we didn't have moratoriums during the financial crisis and now we do. We have all these governments that have certain moratoriums for certain cities, certain governments. When is it going to end? We can time when we're going to see the burst, when the moratorium's in gray.
Adrian Grobelny [00:20:23] I mean, they've had the moratorium. The eviction and moratorium, every every time we come out with a new stimulus plan, they delay it for extended, extended and the first started in March when the CARES act came out.
Shikher Bhandary [00:20:41] Kicking the can down the road seems to be the plan for a lot of things. It's worked.
Jed Tabernero [00:20:46] So the same with student loans. I mean, student loans are delaying payments for student loans again until June or some shit. So what's the government doing to help these people who can't pay the mortgages anymore, who have months of unpaid mortgages? What's the government going to do beyond this moratorium? Right. We're just basically delaying the day when they all have to pay this massive amount. Is the government doing anything to help those people out or are they waiting for the economy to just get better and expecting them to be able to produce their rent payments?
Adrian Grobelny [00:21:25] As far as I know, they're just waiting for the economy to jump start again. All this heavy spending, printing of money is basically trying to get the buying power back up. It's trying to get the consumer confidence, trying to get everything back to normal with the vaccines rolling out. They're just delaying it as much as they can. But there is some light at the end of the tunnel. It's not all bad news total in the US there are about one hundred and thirty eight million total housing units, including single family houses, condos, apartment buildings, any type of dwelling, whether that be residential or commercial. Forty percent of them are completely owned outright with no mortgage, meaning 40 percent are owned with cash. That's good. And there's no loans on them. So 40 percent, I think that's pretty strong in the economy for 40 percent to be owned outright was what was the rate during the 2008 crisis? Probably much lower, right. you know, twenty eight people are levered up, so it's definitely a lot higher. I think people's appetite for that kind of risk is a lot lower. We don't have those ninja loans anymore. And of those properties with a mortgage, which is estimated to be about 50 million, the Mortgage Bankers Association found that only five point eight percent are in any forbearance plan, which they say impacts about two point nine million households. So two point nine million households are having issues with mortgage payments and are in forbearance. Two point nine million houses does seem pretty high. But when you look at the big picture, it's only a fraction of the total real estate economy in the U.S., meaning that, you know, it doesn't seem like it's a bubble. A lot of people will be affected with foreclosures and not being able to pay for their mortgages. But if we look at the whole big picture, it's not as substantial as we would have thought.
Jed Tabernero [00:23:25] I bet you this is contributing again to more inequality, because I bet you all those families, the two point nine million families that are affected by forbearance are probably low income. I mean, the people who there's a certain amount of people who make above one hundred thousand a year that have experienced a wealth increase because of covid and and so we see, you know, millennials who haven't been thinking about buying houses for the longest time, who live in apartments and really cramped up cities that made decisions to to buy real estate outside. Right. And buy like bigger spaces to spend their time in. Yeah, but it's sad to think that, you know, those two point nine million families will be a specific area of, like, you know, low income and it will even. Pernot pronounced the effect of inequality, especially in real estate markets and holding wealth,.
Adrian Grobelny [00:24:25] It goes back to our unemployment discussion. You know, the low income earners, anything below forty five, fifty thousand dollars. The unemployment rate for that earning group is it was 20 percent, whereas the overall unemployment rate is about six point five, six percent at the moment. So, you know, there's a big wealth inequality. And another interesting thing is that all this appreciation and the median home prices that we're seeing is all because of the the million dollar houses that these wealthy high earners are able to afford. And they're demanding it. They're not able to get the houses. And so they're driving up these prices while these low earners are having difficulty to pay for their properties. And then they foreclose on their property and they're back in a position where they don't have the house they need to get one and they're going to be paying even more.
Jed Tabernero [00:25:29] Mass scale gentrification sounds like. So is it a good idea to buy a house right now? Rates are at an all time low. Seems that certain areas are opening up. Is it a good time to buy a house?
Adrian Grobelny [00:25:45] Uh, depends on your situation, I guess. I mean, you know, it all depends on your personal preferences. You know, are you moving to a new state?
Adrian Grobelny [00:25:54] Do you have a family? You know? What are your priorities?
Shikher Bhandary [00:25:58] spoken like a true agent. Spoken like a true, true realtor.
Adrian Grobelny [00:26:05] It's different for each person. But if I were if I were considering purchasing a property, I mean. I wouldn't want to. I wouldn't want to really purchase and be competing with all these other, um, home buyers that are bidding and outbidding each other left and right, you're overpaying and paying such a high premium for real estate in a time when you have interest rates at an all time low. You have a lot of repopulation happening, different cities booming, some declining. And who knows how long this this can run for?
Jed Tabernero [00:26:45] So basically, if you're not making Rack's if you're not a millionaire, don't be out there buying a house right now might not be the best idea. Getting priced out of the market is pretty common, I guess, right now, if people are lining up to just see an open house, it's probably a bad idea to try to get at that house unless you make more than every single mother who walks in the house probably. Right, with difficult times. It's not a normal time to buy a house as well. Right. We just had a recession last year.
Shikher Bhandary [00:27:20] We are still in a recession.
Jed Tabernero [00:27:23] We're still in a recession. Yeah. So, I mean, it's still reflected a while that, you know, it might not be
Shikher Bhandary [00:27:28] that idea is is like people are not talking about it. You know, it's crazy that one in five businesses are closed and people are just like, oh, you know what? Housing is great
Jed Tabernero [00:27:39] if you're not affected, honestly, like it's you know, it's almost invisible to you, like it's very it's isolated.
Shikher Bhandary [00:27:49] Hey, thanks so much for listening to our show this week. You could subscribe to us. And if you're feeling generous, well, you could even leave us a review. Trust me, it goes a long, long way. You could also follow THC @THC_POD on Twitter and LinkedIn. This is things have changed.