What are the chances there will be a U.S. housing problem in the next decade? Very likely.
The mortgage and housing crash of 2008/09 has created a major hurdle for the average homeowner in buying their first home, or upsizing from their current home. Apartments have sprung up all over the U.S. with luxurious accommodations, competitive amenities, and better living. This has increased development costs and raised rent rates.
What are first-time buyers faced with?
Problem #1 – High market liquidity
Since 2009, liquidity has reached its highest volume in the history of the modern world. This pent up liquidity means there is too much cash chasing too few of assets. Thus, large pensions and other institutional players have been willing to pay high prices for developed real estate and at incredible volumes of capital commitments. This has led to one of the largest pushes for multi-family construction to catch the renters who have either lost their homes, cannot qualify for a mortgage or are part of the younger generation who are postponing a home purchase.
Demand has been high for new apartments which in turn has caused rates for new apartments to be high. Older apartments have now been pulled in to higher rent rates carrying with it other lower income housing.
Problem #2 – Rise in Interest Rates
Rising interest rates and cost of living are widening the gap of the affordable index for older home and apartment seekers. It’s limiting their possibility of owning a home anytime soon.
New and more expensive accommodations are brought on the market forcing renters to look at the less expensive and least favorable housing options. Potential home buyers have seen home prices, mortgage rates, and the cost of living rise. Their affordability scores to qualify have dropped and thus pushed many to believe they can only afford to rent a house or an apartment.
Interest rates or projected to continue to rise over the next decade and each increase further eliminates the number of possible home buyers. This expected occurrence will result in a rising demand for apartments and/or rental homes. The downward push on less expensive housing means those at the bottom tier are going to have an increase of rent without the uplift in quality.
There is going to be a substantial impact on lower income renters and their options for quality and affordable housing.
Problem #3 – Less Affordable Options
Options for affordable housing are hard to find. Where does a new or young renter find a place to live if all rental options are already occupied or are continuously increasing in cost?
Since 2000, rents have risen while the number of individuals who are in need of affordable housing have risen as well. These two pressures have created a severe disadvantage for lower-income renters to find a place to call home. Simply put, the supply of affordable and adequate housing has not kept up with the demand of lower-income renters.
Rents will rise. Financial ranking will be set. No longer will those seeking a better home or rental property be able to view the new housing options as a realistic choice. They will have to fight with thousands of other renters for the older, less attractive and less favorable locations to meet their budgets.
Liquidity is supposed to be a good thing. However, liquidity in the wrong hands, in the wrong amount and used in an essential market can cause a back lash of downward, economic consequences for those that are really just macroeconomic victims.
Current interest rates are low so liquid cash has to find a home. The professionals who charge fees for managing money need to put that money to work to maintain control of those funds and earn their fees. Incidentally, once they earn their fees these professionals are the ones buying the luxury homes at the top of this mountain of housing shifts!
The housing market is an impending bubble about to be popped. And as it pops, its debris will attach to everything and everyone in the path of its downward spiral.
Currently, Eckard Enterprises and Troy Eckard are looking at the bottom end of housing. Over time, this is where the masses will be heading and the market will surely see a higher rise in asset value rather than working for small CAP rates at the higher ends.