If you thought it was hard enough to compete against regular home buyers and sellers, now you have a new competitor in the market, algorithms that are looking for a quick profit. Now it might seem like the battle between the haves and the have nots is ramping up and many are looking for get rich quick outlets like options trading and crypto currencies, the reality is the market is dramatically changing. People are feeling left out and for many buying a home seems completely out of reach given that the supply system is completely out of whack in many ways. Part of this has to do with artificially juicing the markets and moratoriums that stalled regular demand from hitting. We have this corporate welfare bailout mentality that is simply creating externalities in the market and because of that, we are seeing soaring prices with toxic fundamentals (which is what we are trying to avoid). During the last crash, you had hedge funds gobbling up homes and making bank and now this time you have things like Zillow Offers and Opendoor making offers on properties. Zillow is pausing home purchases and you are seeing examples where the algorithm is having issues.

Who would have thought that a first in a generation pandemic would actually be a good thing for housing values? While the economy is facing new challenges including major supply chain issues (just look at the shipping costs for containers from Asia to the US) you start to realize that there has been a massive amount of money injected into the economy. While many people are getting stimulus checks, trillions of dollars have gone into the hands of the corporate welfare machine (usually benefitting those that are hardcore free market types). Also, in many high-cost metro areas you still have money flowing in from investors and in parts of California you still have foreign money coming in, largely from Asia buying homes with no contingency requirements and fast close promises. So no surprise that even for a professional working couple buying a home right now with limited inventory is problematic. However, much of this is because of a stunted market with inventory. As a new report highlights, inventory is set to increase by 15% over the next few months because of people exiting forbearance periods.

The attention span of people is slightly above that of a cat thanks to social media platforms that rewire the brain for instant gratification, including on the financial front (think of all of the meme stocks and Robinhood). All the cheerleading that is happening for real estate is largely socialism for real estate. That is, a Fed that is pumping easy money artificially into the market to inflate prices for those that already own. So not a shocker that 2.3 million California “young adults” are living at home and many are waiting until their Taco Tuesday baby boomer parents take a dirt nap from one to many street tacos until they can inherit the home. Don’t believe this? Go read some forums and you will be surprised what this distorted market is doing to people. But don’t worry! Help is on the way. As housing prices reach a peak, our good old friend, the no down payment loan is showing up to the party with a bit more alcohol and financial meth to keep things going.  

This past weekend I was looking at communities across the United States that are now being built to house renters. So why is that even worth mentioning? Rentals are always part of the housing mix typically in the form of apartments. Yet this is something different in that it is a suburban built cookie-cutter individual home market that can easily be selling these homes, but instead they are designed for rentals. Welcome to the United States of Renters (USR). As I’ve discussed before many Millennials are built for rental properties. You usually hear from Taco Tuesday baby boomers that housing is the only option on the table. But the reality is, housing is a drag on the economy in terms of innovation. What is more innovative, designing an iPhone, Tesla, supply chain machine like Amazon, or building a home? Newsflash, people have been living in homes since humankind has been around (from caves to huts). So to have an insane amount of money going to a housing payment keeps discretionary money from funneling back into the entrepreneurial side of our economy which is really what separates our country in terms of innovation. That is, until we get too obsessed with real estate as we did leading up to the last housing bubble. The good news however is that the market is adapting to providing more rentals to Americans and the demand is not slowing down.