Real estate in the United States is an interesting beast. It exists within the complex web of rules and regulations set out by the government, but at the same time it reflects a “state of nature” as laid out by Thomas Hobbes in “Leviathan”.
Hobbes described this state of nature as a situation in which “There is no enforceable standard of right and wrong,” where “people took for themselves all that they could.”
That is a pretty good description of the housing market. But what is the meaning of this? We all know that anyone invested in real estate will take for themselves all they can. Why does this year feel different than last year? Well, that is what we are here to explore.
Homes are Booming
Let’s address the elephant in the room first: The value of homes is going up. And it’s going up fast. In fact, it is going up so fast that people are worried that it is going up too fast.
You see, while homes are always valuable (usually because the land they are built on is valuable) that does not always mean the price of the home is preferable to the market. In this case, it is possible for the price of a home to become an artificial limiter on the supply of it.
Even commodities that are always in demand can have supply chain issues.
Homes are Oversaturated
This is especially relevant now. The number of renters massively outnumbers that of homeowners. In fact, the number of homeless massively outnumbers the total amount of livable homes in the United States. Really, the prices of homes should be lower given their multitudes.
But consider this another artifact of that “supply chain” issue. Homes are priced way higher than their (admittedly high) value. We will get into why later. And at the same time, they are priced too high, they are not a product that is easy to get to people since they, well, cannot move.
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But the Market is Opening Up
Yes, there is a gulf between the people who need homes and the homes themselves. But there are also more people than ever leaving overcrowded cities to go to other states. Or even just going out to the suburbs, just like in the 1980s and 1990s. It started with the pandemic.
When mass evictions started happening as a result of the economic downturn caused by the pandemic, people realized that there are a few downsides to living in the big city. Especially since most people can work from home now, they started looking for alternative living spaces.
This basically means that markets that have never been tapped before are opening up.
Renters are Being Chased Away
The price of homes is increasing, but the cost of rent is increasing even faster. In fact, it is more affordable to buy a home than it is to rent an apartment in some places. How does that work?
Well, homes still require down payments and loans. Banks have tightened their grip on those things in the last two years. But as the market for buying homes grows, the allure of renters wanting to dedicate to home ownership grows more appealing to the marketplace.
Interest Rates Create Long Term Opportunities
The recent raise in interest rates mean that everyone is going to be feeling some short-term economic pain. The value of everything from million-dollar loans to candy bars has to be reconsidered. But after that adjustment period, the increased interest rates will have had their effect. People often think a raised interest rate will stay raised. But they change all the time.
When the interest rates lower and suddenly everyone has more money than they expected, then people will suddenly find themselves with enough money to buy a home.
2021 was Boom
2021 saw enormous growth in every corner of the stock market. People had spent a year dealing with the pandemic, and 2021 showed they were done with it as commerce flow.
2022 is a Cooling Off
Predicting 2022 and 2023 is all about understanding what 2021 was like. Similar to the planned shrinkage and expansion due to the interest rates, 2022 has seen some predictable instability in the markets. Because if you look at 2021, the markets were unstable then too.
2022 stands to correct that boom, though it might not be violent.
Demand is Still High
One thing you have to remember about the housing market is that, like any market, it deals with demand as much as supply. Even if the supply of houses is crap, people will literally line up for them if the demand is there. The constant demand for property is what gives homes value.
Prices Fall if Demand is Met
This is part of the reason why realtors feel so comfortable charging the prices they charge for homes. It means that the wealthy can buy homes and pay the realtors’ bills, while anyone that is not wealthy can occasionally make a wealthy amount of money and pay that price as well.
If they sold to everyone all at once, the market would get too satisfied.
The Wealthy are Willing to Spend
We mentioned why the prices of homes are so high, and we just alluded to this, but here is where the biggest paradigm shift in housing comes from: Billion-dollar corporations are buying as much land as they can. This is helping drive the price of homes way up to sell to them.
This also means that a lot of property is slowly coming under the control of several small groups. Do not worry about getting too conspiratorial, however; this group is such a massive conglomerate of corporate interests that it might see the benefit of lowering prices.
But that is the threat of the “Leviathan”. It has the power to undo the state of nature, but also has the power to become its own state. And it is especially worrying since it has no history except for a history of transactions where it buys up all the land that it can.
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