The Capitalist Investor - Episode 71

The housing market is on fire. There are 1.45 million licensed realtors in the US but only 1.03 million existing homes for sale in the US. Inventory has plummeted as houses are bought off the market left and right. Where do we see the housing market going? Should you consider buying a home? Listen to this episode of The Capitalist Investor for our thoughts!

Outline of This Episode

  • [0:21] The booming housing market
  • [3:33] It’s time to build more houses
  • [4:57] The challenges for home buyers
  • [9:10] The headwinds facing the real estate market
  • [12:59] The unexpected Miami real estate

The unreal Cleveland housing market

Houses are on the market for 2–3 days and people are buying them sight unseen. In Cleveland. We get buying a Miami beach condo sight unseen. But Parma, Ohio? But the truth is that you don’t have time to go look. People are also offering above asking price. I heard of a house that had over 70 offers on it and 60+ were all cash. What’s going on with this world?

A few years ago, the narrative was that millennials didn’t want to own a house. They grew up through the great recession and saw people getting burned. But when you’re locked in your parent’s basement for a year? You want to get out. Now you have an entire generation wanting to own homes. The dynamics are unbelievable. What’s going on in Cleveland is happening all over the country.

If you build it, they will come

We find ourselves in a situation where there are not enough houses for prospective buyers. The solution could be simple—build more houses. There’s a huge shortage. That’s where builders like DR Horton come into play. We had over a decade of under-building. There weren’t enough homes constructed because people were scarred from the great recession. Now they have to get a move on.

The challenge for new home buyers

Should you buy a house now? Or wait a few years? If you’re straight out of college, now is the time to wait. There’s a lot more responsibility involved than you may think. Buying a house locks you down—and if the market does not continue to go straight up—it can tie you down and be burdensome. Derek would rent first, invest the extra money, and wait for a clear situation.

Secondly, if you don’t have enough money in accessible savings that equal 20% of the cost of that home, you should not buy. You should wait until you’re financially stable enough to make that happen.

Derek graduated in 2003, moved into a condo in 2006, and everyone told him it was the greatest investment he’s ever made. Three years later, it was worth 35% less than what he paid. The 10% he put down was upside down at that point. He couldn’t move unless he wanted to take a big loss. Derek is still renting out that condo in 2021.

The headwinds facing the real estate market

When these three factors potentially influencing the housing market go away, things will change.

  1. When the free money (stimulus checks, unemployment checks) goes away, will people have excess money to buy a home?
  2. What will happen with interest rates? As they continue to climb and mortgage costs go up, how does that impact supply and demand—and pricing? Interest rates will go up soon.
  3. People are going to stop spending money on making their homes places they love when things continue to open.

It feels great to put money in your house at this time, but do those “improvements” factor into the purchase price in five years? Spending $25,000 putting a custom movie theatre into your home isn’t going to move the needle. We don’t think the housing trend will continue.

Where is there an unexpected buyer’s market? Listen to the whole episode to find out the ONE place you might be able to get a steal.

Connect with Derek Gabrielsen

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