The Housing Market Crash Has Already Happened
The housing market crash has been a subject of speculation, with concerns about a potential bubble and its subsequent burst, both across the US and Huntsville, Alabama. However, the crash has already occurred, although not in the way most people expect. We look into the causes of the crash, propose solutions, and explore the potential ramifications if we fail to act promptly.
Housing Affordability Continues to Decrease
Affordability has taken a major hit. With 2008 in the back of everybody's minds, it's only natural to ask, "Are we in a real estate bubble, and is it going to pop?" We've had a massive hit on affordability due to price increases, which is a reflection of massive inflation, monetary policy, and money printing in this country.
On top of all of that, you've got the Fed manipulating interest rates, which has the home affordability index now below 100. That means the average income in our area cannot afford the average price home in Huntsville, Alabama. With affordability nearing an all-time low, it's no surprise that we also have a 50-year low in terms of home ownership across this nation. As a result of that, we have nearly twice the housing supply that we had nearly a year ago. With increasing home inventory, lower home ownership, and less affordability across the Huntsville market, we're sure to have a real estate crash in Huntsville right?
The Housing Market Crash Has Already Happened
We've already had the crash. If you look at this chart, the crash actually started back in 2019. It wasn't the crash that everybody's looking for, which is a pricing crash. It was actually a crash in terms of the supply of homes in this country. Why did we have this housing supply crash in the US?
Back in 2008 due to the financial crisis that we experienced in this country, builders slowed down the rate of building and we continued to have new family formations in this country, which resulted in about a 6 million home deficit across the US.
Now we have that home deficit which has affected the rate of supply at a given moment in the US. Normally we're looking at 1.5 million to even 2 million home supply is considered a healthy market in the US. You can see in this chart that we are dramatically below what is considered healthy, even though the housing supply has doubled across the US over the last year.
How to Solve the Housing Crisis
What's the solution? Well, it's definitely not manipulating interest rates, which is what the Fed is doing to try to fix this Econ 201 challenge. It's a supply and demand issue, and manipulating interest rates is just a short-term solution to this 6 million home deficit that we have. The long-term solution is simply to build more homes.
It took us over a decade to get into this mess and it's going to take us likely over a decade to fix it as well. We need to start working on it today in terms of increasing the supply and not just supply of homes, but particularly affordable houses so that millennials can get into their first home and start to build wealth in this country.
What Happens if We Don’t Fix the Housing Crisis?
If we don't fix this challenge, what's at stake? Our nation is going to continue this trend of ‘Renter Nation’. We're already at a 50-year low in terms of homeownership in this country. That's really going to be the tip of the iceberg if we don't fix this supply, particularly affordable supply. I think that's really what the smart money is betting on.
That's why you're seeing so many apartment complexes being developed in Huntsville, Alabama, particularly luxury apartment complexes, which just really locks in those renters. It keeps them from being able to save up enough money to be able to buy and ultimately purchase a new home. That is one thing that's being affected, it's going to increase the wealth gap in this country because most people build their wealth through homeownership.
You have 40 times the net worth as a homeowner versus a renter. Another issue is going to be pride of ownership. Just simply speaking, homeowners on average have a higher pride of ownership in this community and are more involved in the community than renters are on average. A loss of pride, of ownership in our town, is going to have a significant effect on our quality of life here.
Finally, where are our kids going to grow up? For example, living in an apartment complex versus having a backyard and being able to play with neighborhood friends, that's going to be a negativity for our future generations. That's what's at stake if we don't fix this home ownership crisis that we have.
If you're looking to purchase your first home, shoot us an email at firstname.lastname@example.org or you can give us a call at 256-333-MOVE. We actually have a list of new construction homes and even existing homes that are affordable options for first-time homebuyers to get started in building wealth, having that backyard, and having pride of ownership within our community.
Posted by Matt Curtis on