People need a place to live. People with a 2.7 % mortgage rates are reluctant to sell creating a shortage of inventory of houses for sale. The upper limit of value is the cost of a contractor to build a new house. Residential contractors/developers don’t want to loose $$$ so they won’t build unless they can at least cover the cost to build. If there is a demand for residential housing and residential developers don’t build because they can’t cover cost due to 7% mortgage interest rates, then cost to rent may increase or people will double up, live with their parent, or become homeless. The USA has 550,000 homeless, including thousands of children, yet Uncle Joe refuses to close our Southern border. If 15,000,000 migrants repatriated, demand for rental housing would decrease and the cost to rent would decrease.
Nice article, John. Psychology and the herd mentality play a much bigger role in the housing market than people give them credit for. I remember it clearly from the last cycle. People who didn't hesitate to buy in 2005/2006 (at the top) thought I was crazy for buying in 2010/2011 (at the bottom). The ability to move into a contrarian mindset is helpful in all forms of investing.
Joe, Thanks so much for the comment! I appreciate it!
John,
This is a great comment that explains a lot of what I'm seeing. Also, I don't see this explanation elsewhere. Thanks.
People need a place to live. People with a 2.7 % mortgage rates are reluctant to sell creating a shortage of inventory of houses for sale. The upper limit of value is the cost of a contractor to build a new house. Residential contractors/developers don’t want to loose $$$ so they won’t build unless they can at least cover the cost to build. If there is a demand for residential housing and residential developers don’t build because they can’t cover cost due to 7% mortgage interest rates, then cost to rent may increase or people will double up, live with their parent, or become homeless. The USA has 550,000 homeless, including thousands of children, yet Uncle Joe refuses to close our Southern border. If 15,000,000 migrants repatriated, demand for rental housing would decrease and the cost to rent would decrease.
Nice article, John. Psychology and the herd mentality play a much bigger role in the housing market than people give them credit for. I remember it clearly from the last cycle. People who didn't hesitate to buy in 2005/2006 (at the top) thought I was crazy for buying in 2010/2011 (at the bottom). The ability to move into a contrarian mindset is helpful in all forms of investing.