Every single day it seems I talk with someone who’s either worried about overpaying for a Twin Cities duplex or home if they buy now or who has decided to sit on the sidelines until “the crash” happens.
Let’s dispel some myths. The housing bubble of 2005 and 2006 was caused by an artificial construct in the banking industry. Today rising prices are driven far more by demographic trends.
- According to research from Realtor.com, the U.S. is currently short 5.24 million homes. (This number includes both single-family and rental properties.)
- According to the U.S. Census, the number of new home builders in the United States fell from 98,067 in 2007 to 48,557 in 2012. Of the builders who survived, most dramatically scaled back their number of employees.
- Between 2012 and June, 2021, 12.3 million new households were formed. However, there were just 7 million homes built.
- In 2021, construction was started on just 1,595,100 new homes.
- The supply chain and shortage of skilled tradesmen have slowed builders’ ability to keep pace.
- To get caught up, builders would need to double the number of homes they’re building for the next 5-6 years.
- Demand is high. Supply is low and looks as if it will be for quite some time.
- Interest rates are still extremely low. Even though they have been rising and all indications are they will continue to do so for the next 18 months, an increase of 1% interest changes affordability by 8%, not 30%. The purchase price on a house a few years from now may be slightly less, but if interest rates are 6% or more, your total cost for the property may end up being even more – the higher cost will just be in your interest payments instead.
- Due to these shortages, the average price increase in homes across the nation in 2021 was 20%. So if you felt you overpaid in January last year, the market has already kept up with you.
- Remember, even if prices don’t go up any further in 2022, time has a way of curing all “bad” real estate investments. Even those who bought at the height of the housing boom of 2005 and 2006, if they still own the property today, are realizing gains above and beyond what they paid.