Dear John,

Dear John,

Why are houses so expensive and why aren’t there more for sale?

I admit, I am rarely asked this question. The only person that ever asks this question… is me.

My thoughts are all my own and based on what I see out here. I am rarely swayed by talking heads, real estate folks, and those that tell me about a house that sold in their neighborhood twelve months ago.

What’s my answer?

Let’s start with the premise that a great housing market is one where you can sell your house in 30-60 days and secure another dwelling to buy, larger or smaller, in the same amount of time for a similar price per square foot, all things being equal.  For most of my career this was my definition of a great housing market and it still is.

Why are there higher prices?

Tight supply, higher incomes, higher costs to build new construction, the wealth effect, and lower interest rates are what come to my mind first. If you evaluate these items, I subscribe that all these things happened at one time and that has NEVER happened before all at once. Remember that thing called COVID?

Four million people dropped out of the work force in those two plus years which made people who WOULD work get to be paid more and with better terms. If you are making more money and you don’t need to drive your car to the office, you can afford more of a payment. When everybody makes their mortgage payment, there are also less foreclosures to drag prices down.  

Tight supply?

There have been many reasons for it. Most refinanced into lower payments and stayed put. It has made it easier to afford what you already have and less likely you will have to sell if something bad happens. People have been fixing up their houses for years but during Covid, they went a bit overboard. Why move when you just fixed up the joint? Blame HGTV I guess. 

Let’s not forget that a lot of older Americans have aged in place more than ever before. There hasn’t been a rush to move to the old folks home as we adapted our houses to stay put. Drive through your neighborhood and honestly see how much blue hair you see. You will see plenty and maybe more than you want in your own mirror.

Higher costs?

For a couple of years everything from lumber to roofing cost a bunch more and the cost to install as well. Labor could name its price to just show up.

Interest rates and the wealth effect I put in the same category. Both gave more buying power and confidence to buy because the personal balance sheet looked great. At the same time our government printed a bunch of money that came our way in many forms.

Dear John,

What’s next in the housing market?

The supply of resale homes will show up more as the regular business cycle comes back into play and a natural higher rate of unemployment makes moving around a bit more common to secure new opportunites. I predict older Americans will see their high home prices ebb and finally move to smaller spaces. This is a biggie and will finally show up. Inflation wanes and prices recede on all items you buy including houses. Labor will still remain high with higher minimum wages and union increases but innovation will somehow negate that as it always does. We will get back to that perfect market but it’s going to take a bit to get there.

Please write “Dear John” with any questions you may have.