Additional things you should know about housing that have changed the industry. It will help you prepare for that life-altering decision at some point in your future of staying or moving.
Homebuilding
New homebuilding is expensive, and most first-time homebuyers are priced out of this option. The land that is purchased for subdivision is often on the outskirts of a city that can be far from jobs, schools and other community amenities. It should draw more empty-nesters and new retirees into a resort style modern living, but it isn’t.
Population growth has outpaced home construction for 20 years and the number of people living alone has consistently increased over the last several decades.
A structural change also emerged after the Great Recession where smaller homebuilders couldn’t withstand and survive the housing crisis. They merged or were acquired by the larger players who had more access to capital and incentives. This precipitated the industry consolidation and resulting lack of competition with less productivity. An entire industry experiencing negative productivity is rare in our technology driven world.
My first job out of college was with Lennar Partners in Atlanta, a newly formed subsidiary of Lennar that managed commercial real estate asset portfolios (Lehman Brothers and Westinghouse) and mortgage-backed securities (Morgan Stanley). It eventually was spun off as part of LNR Property Corp and acquired by Cerberus Capital in 2005, Starwood in 2013, returning Lennar’s focus to homebuilding. I also worked for Morrison Homes of UK based George Wimpey that merged with Taylor Woodrow in 2008 forming Taylor Morrison that became part of TMM Holdings in 2011. Lennar was one step ahead.
Why are homebuilders not matching the demand of the buyer for the smaller, affordable homes so many seek? It’s a combination of profit margins, rising material and labor costs, regulatory roadblocks and the need for more efficient construction methods. It is an industry that is ripe for disruption but is so heavily reliant on local subcontractors making it an outlier. Innovation is difficult to scale when a large part of the workforce isn’t your employees.
Even if a new start-up homebuilder swooped in and disrupted this industry with innovative and cost-efficient production, would they have access to land to build on? It depends where zoning and permitting are flexible and efficient such as Texas.
Regulation
More homes could be built with government incentives and mandates including determent of investors (domestic and foreign) from buying up the available inventory but that could cause homebuilders to consolidate even more once they end. Even if federal regulations and incentives are passed, it is the local government’s planning, decisions and incentives that need to be amended. California, but more specifically the Los Angeles/San Francisco areas, are exceedingly difficult to build in. It’s not just the NIMBY’s – not in my backyard.
About a mile from our former house in LA, there was a 9-hole community golf course / driving range where I sort of learned how to play golf. A developer owned the property planning to construct 200+ homes on the land after the course closed in 2016. This was met with compelling opposition from the community homeowners citing increased traffic and fire concerns. The Los Angeles Planning and Land-Use Management committee denied changing the zoning from agricultural to low- to medium-density residential housing. The LA City Council voted unanimously to uphold that decision. The developer took this to the State of California Supreme Court last year but to no avail.
The property is currently a vacant, overgrown fire hazard where the homeless community has moved in.
Before we left in January 2022, there were two mixed-use medium-rise apartment buildings being proposed along the shopping corridor blocks from where we lived. Again, these faced stiff opposition and have not been approved to date.
California Proposition 13 (1978) requires properties to be assessed at market value at the time of sale. In years following, property tax assessments can’t be raised more than 2% until the house is sold again incentivizing homeowners to stay in their original home. Los Angeles also has a density bonus program that incentivizes homeowners to convert their garages which are rarely used for cars and any ADUs (accessory dwelling units) for housing rentals. Both are clearly evident in the neighborhoods.
Infrastructure
As increased land is developed and supply of homes built, the accompanying infrastructure must follow. This is slowly happening in the surrounding areas of where we currently live with roads being expanded or tolled, schools thoroughly funded with increases on already high property taxes and Metra train stations readily accessible in the suburbs.
California voters did approve a $10 billion school construction bond in November. Traffic, however, is a widespread problem in Los Angeles where it isn’t confined to certain areas and the driving culture prevails. We were ready to move almost anywhere else where we could consistently, predictably drive.
Besides avoiding fires, our trips to/from LAX, which was 31.2 miles from our house, were the most unbelievable, unpredictable drives. They ranged from 1 solitary time that we made it in 40 minutes to the worst of 4 hours returning before a mega concert at the Rose Bowl. Uber and cabs would ghost us. Our current house is 31.3 miles (a coincidence) from O’Hare, and we consistently arrive or return in 30 minutes or less with no stories to share. This is good boring.
Housing Culture
The US is not a high-density housing culture. Most residential neighborhoods are zoned for single family homes. However, many don’t like the monotony of HOA governed subdivisions where every house looks the same lining the treeless streets. Moving from a house built in 1844 in the middle of nowhere to a newly built one with neighbors on all sides was a 180 change but each did have positives and negatives.
The American Dream isn’t living in high-density high-rise housing. Much of the housing culture we know was shaped by the Silent and Baby Boomer generations and how NIMBYs originated. The results of this survey tell that story – Baby Boomer Housing Market 2024: More Than Half of Older Owners Never Plan to Sell | Clever Real Estate
Retirement communities are catching on and gaining popularity in some urban settings but still lag in more rural areas. One was recently constructed in my hometown but my Mom isn’t interested. She prefers living in her condo on the ground floor with her car garaged directly off her kitchen.
Multiple generations of parents, kids, grandparents living in one house was common in Los Angeles. It may become more so.
Exodus from high housing cost areas
We sold our house in LA to one lucky family, not an investor, after 9 days, 57 showings and 9 offers. All but one had at least a 20% cash down payment including an all-cash offer (investor). The price growth from 2009 – 2022 was 225%. To us, this was utterly insane and many like us, have moved to lower cost housing areas. We are contributing to the problem driving up home prices in what was once relatively stable housing communities.
Current house Zillow.com
This is a great graphic depicting a more complete story where affordable housing does exist in the US and how the exodus from California has impacted the Western states and from the NE to Florida. Growing populations in desirable locations like Tennessee, the Carolinas and parts of Texas have also driven up housing prices.
Fewer people are relocating but more may have to relocate in order to find affordable housing. This may mean compromising where you live moving away from family and friends and finding different jobs.
Here’s the best and worst counties to buy a home right now
The Housing World
To get an even better understanding of the US housing market, take another step back and view it from a North American perspective.
This is home price growth from 2005 to 2024. Canadian cities actually top the list with 3 Mexican cities in the top 10. Dallas is the top US city for price change but even at 151% growth, the 2024 home price is nowhere near those in Toronto, Vancouver or California.
But then you should take a step back even further and look at housing from a worldview to see the big picture. My older brother and his family live in Hong Kong. I visited in 2001 but haven’t been back to see their current flat. It’s roughly 650 sq. ft. with 3 bedrooms on the 46 floor that does have an ocean view. They purchased it many years ago around 1/4 of today’s price.
This puts the US housing market into perspective. The US as a whole didn’t even make the Top 10.
Mapped: How Global Housing Prices Have Changed Since 2010
Mortgage rates could fall into the 5% range over the next few years, but economists don’t foresee them falling further to the 3% – 4% range in the foreseeable future. Housing prices may moderate in areas where homebuilders are less regulated in lower cost of living areas. I’m seeing this where we live now. However, in states like California and other highly regulated, touristed, growing states and cities, home prices will continue to be high. No one entity is going to solve the complexity of housing economics. It’s going to take considerable collaboration, planning and experimentation among local, state and federal governments with homebuilders and a change in housing culture acceptance for the rest of us.
Buying or selling a house, the most expensive asset, isn’t like what it once was. At some point in our life, many of us will move again. Educate yourself on the housing market in your community and where you think you might want to buy/rent in the future. This is so much easier to do now than it was in 2000 when we bought our first house and were so uninformed even in 2008. The more you know, the better leverage you can build.
Things to know as we near the close of 2024.
Real Estate Commission Changes Are Here For Buyers, Sellers | Bankrate
Average homeowners insurance cost in December 2024 | Bankrate
Post note: these last 2 articles were time intensive, research driven and fascinating having worked in homebuilding and buying and selling a lot of houses. It made me realize and appreciate how much time some of the people I follow put into delivering worthwhile and valuable content along with their day job. I only do this weekly in my spare time to share what I learned and what you should know. It’s my way of paying it forward.