Buy Land, They’re Not Making It Anymore

April 06, 2022

Column chart showing homes built in the U.S. by decade. Chart subtitle: The 2010s saw the fewest homes built in the U.S. since the 1930s. Chart visual description: Y-axis is labled "Homes Built in the U.S. (Millions) and ranges from 0 to 30 in increments of 5. X-axis shows decades since 1930, labeled 1930-1939 at left up to 2010-2019 at right, with 9 total columns. Each column is purpled except for the most recent, in grey, and has a data label above to one decimal point. Chart data description: 1930-1939 column at 5.4 million; 1940-1949 column at 9.6; 1950-1959 at 21.4; 1960-1969 at 20.2; 1970-1979 at 25.8; 1980-1989 at 25.2; 1990-1999 at 26.7; 2000-2009 at 27.1; 2010-2019 at 5.8. Chart sources: Robert Frick, Navy Federal Credit Union. End chart description.

Individuals commonly allocate 20–30% of their net worth into a primary residence, which oftentimes accounts for the single largest investment in their portfolio. The market value of one’s home is impacted by variables that include, but are not limited to, supply and demand relationships, property location, borrowing rates, and tax policies. Since early 2020, median home prices have increased over 25%, benefitting homeowners and their portfolios significantly.¹ The appreciation in home prices can partially be attributed to the shortage of homes built over the past decade. Not since the 1930s, when the country’s population was roughly 40% what it is today, have so few homes been built in the United States. The problem is further exacerbated by the average age of a home in the U.S. — 40 years,² well beyond its useful life — and current labor and material shortages that have been lengthening project timelines and delaying starts.

The sudden rise in housing valuations has homeowners and investors wondering if this could be another bubble, akin to the 2008–2009 mortgage crisis. While new home starts will likely remain low in the near and medium-term, rising interest rates may serve to stymie demand. Since the end of 2021, interest rates on a 30-year fixed mortgage have risen nearly 200 basis points to almost 5.0%,³ adding meaningfully to the cost of buying a home and potentially pushing ownership outside the reach of prospective millennial and generation Z buyers. However, opportunity exists in any inefficiently priced market, which is why more and more institutional investors are allocating “dry powder” to the residential real estate market. Ultimately, buyers, sellers, and lenders are justified in asking whether we are on the precipice of another housing crisis or if this is the start of a new normal with additional runway for growth.

Print PDF > Buy Land, They’re Not Making It Anymore

 

NOTES
¹ Lambert, Lance. “Homeowners struck gold during the pandemic—here’s the breakdown in every state.” Fortune. 23 Dec 2021.
² Jones, David. “Ages of Houses in the US.” BuyersAsk. Last updated 4 May 2021.
³ 4.96% as of April 4, 2022

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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