The term “housing bubble” is closely related to the 2007/08 recession that found mortgage institutions lowering the thresholds on who qualifies for a new home so low that soon after buying their new home, many customers defaulted.
The rush to buy new homes by previously unqualified buyers saw billions of dollars in new mortgages go down the drain when those buyers failed to make their mortgage payments.
This left a market full of foreclosed homes and no buyers as the bank regulators began tightening the qualifications for obtaining a mortgage. The next 5 years saw many prefab and modular factories shuttering their doors and walking away.
It’s unlikely we’re going to see a bubble burst in the way that we saw in 2008.
For one thing, loan standards that were loosened during the bubble are much tighter now, with stringent requirements for good credit, complete documentation and a sizable down payment.
Another factor is the housing boom of the early 2000s was driven by a surge in home construction that led to abundant supply. But there’s been a building shortage over the last 10 years, especially in cities with high demand. The result is a supply-demand mismatch that can’t be resolved quickly or easily.
People working from home is a new experience for many companies since COVID hit the workforce. This workplace change, along with higher wages, meant many families could move to areas away from the cities.
The median home price has risen almost 50% in the last decade with smaller cities like Boise, ID seeing a rise of 81%, taking first place in the nation as the most overpriced city in the country.
Where the 2008 housing bubble was caused by poor money management and loose banking regulations, those factors simply don’t apply today.
There is a definite rush for affordable housing in the form of townhouse communities, single-family homes and apartment buildings but it’s still not enough to meet the demand.
Alternative housing is springing up across the nation to meet the shortfall forcing buyers with a good downpayment, good jobs and good credit that can’t find an affordable home.
Auxiliary Housing Units (ADU), Tiny Houses on Wheels (THOW), Shipping Container Homes, Foldable Homes, CrossMod Homes and other housing types unheard of just a decade ago are all now acceptable alternatives to traditional housing.
So why are many in the industry calling this a Bubble? Isn’t a bubble supposed to get bigger and bigger until it bursts or someone puts a pin in it?
This time the bubble isn’t an oversupply of housing, it’s an oversupply of demand and several factors that the housing industry has never seen occurring at the same time.
Here are just some of the things happening at “the same time” to housing:
- High cost of Lumber and Building Materials
- Shortages of Lumber and Building Materials
- Skilled Labor Shortages
- Rising Payroll for Construction industry workers
- Higher Fuel prices
- Zoning Restrictions
- Time-Consuming approval processes
- Environmental restrictions
- Lack of capacity in factories
- Factories not coming online fast enough
- Lack of truck drivers, set crews and finish crews
Homebuilding is expensive and it’s getting harder for developers to turn a profit on modest housing. Median home prices are rising faster than ever because demand is strong. Yesterday’s affordable housing projects are today’s subsidized housing. Developers are rethinking how to keep up with this change every single day.
Strong demand for new housing in all forms is here to stay for quite a while. In fact, just meeting today’s demand isn’t enough. With Millenials and Boomers fueling today’s demand, tomorrow’s next generations are already earning enough to begin pushing even the newest offsite factories to their limits.
What is next in the Housing Market?
There are several new players entering the housing market to meet the demand. The first is the “Build to Rent” developer. With rents having sharply outpaced inflation for the last decade, look for entire communities to be built, especially in cities with high housing demand.
Also coming on strong are housing developers building their own factories. With the pressure on existing, and even factories that are still in the planning stages, to commit to builders and developers, some of those developers can’t wait for someone to build a factory to help them supply housing, so they’re building their own. Developers have to hedge their bets today.
So, if this isn’t a Housing Bubble like we saw in 2008, what should we call this Non-Economic situation our industry finds itself in?
Let me know!
Related Articles:
- Affordable Housing Over The Past 70 Years
- Attainable Vs Affordable Housing…Are You Confused?
- Britain Shares The United States’ Need For Affordable Housing
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
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