Welcome to the Real Estate Super Cycle, we know it’s here because no one predicted it.
The experts were trying to get ahead of the next downturn like an Inman article in late 2016 titled “Beware, warns Gary Keller, foreshadowing ‘shift’ in the housing market” but now it’s clear we have had the opposite of that happening as low inventory is afoot as many popular publications have noted such as:
Why could it be a Real Estate Super Cycle, 20+ years of housing appreciation? Economics 101, this is what happens when no one NEEDS to sell. This lack of sellers is stripping the needed available supply to match demand, supply is headed for all-time lows. The last time supply was this low in recent memory, we had EXCESSIVE DEMAND becoming evident in 2004, a glut of straw borrowers buying multiple houses due to an unregulated mortgage and appraisal process allowing no money down borrowers to own multiple houses.
This housing cycle is different because we have a LACK OF SELLERS! The cause of lack of supply is as follows:
1. New building is HALF of what it is was during the last cycle due to lack of labor and insufficient land and other regulations. This was first pointed out by Mark Fleming on First American: blog.firstam.com and by census.gov
2. During the recovery, wealthy cash ridden investors like BlackRock, empty nester’s & other savvy personal investors looking to expand their real estate portfolio, as well as other wall street money bought the short sales and foreclosure and rented them. Well, rents are on the rise due to the lack of supply! And wealthy investors don’t sell cash producing appreciating assets…. until maybe the cycle is at its end!
3. Zillow called it the Silver Tsunami, but unfortunately, it is FROZEN AT SEA! Empty nesters held through the downturn now pushing the average to 13 years they have owned their home but the reality is most of these homes are dated evidenced by the HGTV effect and the current seller is holding until their house is worth more net of fees than their 2005-2006-2007-2008 purchase or they perish. and frankly, medical services gains means they might live into the 90’s, not 60’s.
4. Interest rates are making owning cheaper than rising rents.
5. Millennials are ready to buy if they don’t get outbid.
6. Investors have found a new way to make money through Airbnb and VRBO.com taking hotel nights and turning them into investments for Millennials and other savvy investors.
Who knows how long this will last, but it sure looks like it’s got some legs. Oddly enough in the severe inventory stricken markets like Oregon, Arizona, and Florida, the possibility of some AIRBNB investors selling due to lack of travel & vacationers caused by the Coronavirus impacts may be a welcomed sight! For a while, I thought sharp appreciation caused by the severe lack of supply may squash this rally like the mid-last century but now the demand will be dampened by the Coronavirus outbreak and increase the likelihood we get to super cycle status!