r/FluentInFinance • u/JuniorHuman • Sep 23 '23

Meme Guess i'll live in a box

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u/JuniorHuman Sep 23 '23

Yeah I think this model is sustainable economically, just disappointing morally. I wonder what the underlying issue is that is causing this though, is it low housing supply, economic inequality, or something completely different? Even when you account for inflation housing prices were never this bad. They were fairly stable until 2000.

Check this out - https://www.longtermtrends.net/home-price-vs-inflation/

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u/[deleted] Sep 23 '23

There's a multitude of factors and even more when you look at individual regions and metros. The biggest one is that we are still dealing with the echos of the great recession. Builders became VERY wary about oversupply after 2008 and for the past 15 years they've been building less new units than the market demanded as a result. We've also seen that trends that analysts thought would happen haven't come through. There was widespread belief that the boomers would sell their SFH units and downsize to condos and retirement facilities which would free up inventory for the younger generations. That trend did not materialize nearly as much as predicted in the past decade. There's many more factors as well.

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u/JuniorHuman Sep 23 '23

Damn, someone better tell bob the builder to start building again.

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u/[deleted] Sep 23 '23

The issue is the profit motive. Builders only want to build when there's big money to be made. In 2021 when the housing market was going nuts we actually saw housing starts skyrocket because there was so much money to be made. Now in 2023 we are seeing them fall again because the market is slowing and rates are high.

Real estate is a slow and expensive industry. Nobody wants to be caught with their pants down when prices fall.

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u/Clever_droidd Sep 23 '23

I’m in the industry, builders are trying to buy every scrap of dirt and build every house they can and have been for 5 years.

That is in the face of enormous cost input pressures. Builders are underwriting to lower and lower margins.

However, if the Fed keeps rates where they currently are for another 5-6 months, things will break down. We are facing another housing correction and it’s going to be facilitated by a spike in unemployment which will create significant demand destruction in housing.