The Housing Crisis Might Be a Perfect Time Invest in New Real Estate

The United States is looking down the barrel of a new housing crisis, but that doesn’t necessarily mean you should panic. Many home-owners, be they first-time buyers or real estate experts, have discussed the post-COVID-19 housing crisis in hushed tones, like a monster seen in the dark recesses of a child’s closet or a looming environmental crisis. This fear is not unwarranted. However, it is hyperbolic.

So why might the United States enter into a new housing crisis? Is there anything we can do to stop it before it spirals out of our control? By understanding the whys and hows of the situation, investors might be able to help deconstruct the building blocks of this disaster. You can help save the housing economy from its newest adversity while also putting a few extra bucks in your pocket.

What is The Housing Crisis?

America’s current housing crisis is a direct result of there being too little supply to meet the demands. A report from Freddie Mac, the Fortune 500 mortgage giant founded in 1970, states the US housing market has 3.8 million fewer homes than required to meet the demands of 2021 prospective buyers. And, frankly, that’s a lot of people in need of a home who aren’t getting one.

http://www.freddiemac.com/perspectives/sam_khater/20210415_single_family_shortage.page

That there is a lack of supply is not news. What is news, however, is how extreme the lack of supply has become. The disparity between availability and demand has increased by 52% between 2018 and the end of 2020.

https://www.businessinsider.com/us-housing-shortage-nearly-4-million-homes-fannie-mac-data-2021-4

Because of this lack of supply, homes are becoming increasingly expensive – often, beyond what first-time home owners can afford. Median home prices increased 15.4% across the nation to an average price of $346,000, as of January 2021.

Not every location experienced the same effects of the housing crisis and the rising home prices – though everywhere has, to an extent, been affected. While median prices in the South only increased by 8%, in the Northeast median home prices rose 16.8%! Metropolitan areas went even further beyond, with prices increasing the most in Austin, Texas. The median home price there rose 30.2%!

https://www.realtor.com/news/trends/nation-faces-unprecedented-housing-shortage/

Millennial first-time buyers, now near or passing 30, need property. They’re starting families. They need a place to reside. However, with the average Millennial salary being $47,034 a year, this increase in price might prove too much for them to secure a home. On top of that, Millennials are going to find themselves in competition with one another, bidding over a dwindling number of properties slipping farther and farther outside their fiscal reach. How many people are just going to be unable to afford a home? How might that only further burden a generation hit hard by financial disasters?

https://smartasset.com/retirement/the-average-salary-of-a-millennial

What is Causing America’s Housing Crisis?

So why are there so few homes available? There are two core issues that spurred on the crisis: no one’s leaving their homes and no one’s building new starter homes.

Construction has slowed on homes for first-time home owners. During the 1970s, approximately 418,000 entry-level homes were constructed on an annual basis. In 2020, approximately 65,000 entry-level homes – roughly 15.5% of the 1970s average -- were constructed! There are a few reasons why this is the case. The 2008 financial crisis saw many construction companies go out of business. Lumber and labor shortages have increased the cost of construction. Whatever the case, there is a decreasing number of new starter homes being made.

This wouldn’t be terrible if people regularly moved out from their starter homes into higher-end houses…but people aren’t moving out of their old homes. Or, at least, not enough of them are.

The influx of houses being put on the market is down compared to prior years by a significant number. Sellers have pulled their houses from the market over the course of the pandemic. The overall housing inventory has fallen 43% between January 2020 – before the quarantine orders were issued – and January 2021 – one year into the pandemic.

https://www.realtor.com/news/trends/nation-faces-unprecedented-housing-shortage/

While the pandemic is a huge factor contributing to the housing crisis, it would be foolish to believe the end of the pandemic will end this crisis. Freddie Mac’s report continued to paint a bleak picture of the housing market in post-pandemic America.

"As we navigate our way through the year and get beyond the pandemic, we expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the U.S. Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities."

What is the Solution to the Crisis (And How Can You Profit From It)?

As mentioned in the Freddie Mac report, there is a solution: construct more residences for new buyers. By increasing the quantity of homes, we can more effectively create a supply that can, in turn, make it easier for new buyers to find residency.

At NRIA, we finance and construct luxury homes. We are building new property in desirable areas. These complexes can house hundreds of families. During this period of time, prices and demand for homes are up. This means that the homes we create will be entering into a market during a period of time where homes sell for high prices.

We are also working on a variety of high end, yet affordable, rental projects in densely populated, urban environments of The Gold Coast of Hudson County and The Delaware Water Front of Philadelphia. In West New York, we will be creating roughly 400 apartment units that will be efficient, highly commutable, and amenitized. Then in Philadelphia we are breaking ground this year on Phase 1 of 3 of the Philadelphia Water Club which will eventually yield over a 1,000 unit self-sustaining community of indoor/outdoor communal space, retail, shopping, and waterfront amenities. These are but a few of the numerous projects we are working on, all of which will house multitudes of tenants.

The homes we build and sell are luxury homes, and thus are priced far outside the financial reach of a Millennial trying to buy a first-time home. However, our construction projects will have an impact on those hurt by the housing crisis. The families eager to buy our real estate will need to put their original homes on the market. Perhaps that home will be affordable to a new buyer – or, perhaps, a home owner willing to move out of a starter home. The process inevitably stirs up the market.

We create condominiums with multiple units in the Northeast. By investing in our projects, you help construct new homes that can stimulate and strengthen the housing economy – and in the process, make some money for yourself.

The housing crisis might loom over everything like a dark shadow, but it doesn’t have to be seen as an inevitable apocalypse. View it instead as an investment opportunity.