Could the real estate market go into shock?

Question

So this may seem crazy, but hear me out. Several of my sellers have expressed concerns about their ability to find a new home to buy - they literally told me they will hold off selling until they see more inventory in the market. While I have hopes that we will see more listings in spring, I am have been seeing new listings decline week over week here in Milwaukee - that's the wrong direction!

Interest rates have started to rise, so that may take a little heat out of the market, but it also has increased my buyer's willingness to be even more agressive, because they know rates will rise if they can't get an AO now.

I start wondering, is it possible that the RE market will go into a shock, where people are not selling, because there is nothing to buy - and this is becomming a self-tightening knod? We have never seen anything like this, but does that not mean it could not happen? I am collecting thoughts for my next YouTube video and would like to hear your opinions. The big influencers on social are still talking about forbearance and foclosures - if I do some napkin math and divide it by 50 States, that additional inventory (most will sell, not forclose) will not amount to enough to fill the market.

How will we get out of the inventory shortage? Where is this going?

Here is some recent data:

Brock Mogensen · Answer

I agree, the housing market is crazy right now.  It will be interesting to see how it plays out over the next 1-2 years. All eyes are definitely on the housing market as it props up the economy.

Dan Maciejewski · Answer

Honestly, the tighter the resale market, the more incentive for builders to build.  If you saw Gary and Jay on day 1 of FR, they talked about new starts finally getting back to pre-crash levels, like they are supposed to be.  We've been in an interesting time for the last decade, and sellers are going to see a reduction in appreciation as there is more inventory coming on the market.

The crash took a lot of builders out and that sector is recovering right now.  Whether or not materials stay expensive, the higher price per square foot in the resale market will make building new more profitable.  And your buyers can finally get some newer and quality homes!

Take a look here and adjust for the 25 year graph to see how bad we've been.  Also, the more new starts, the lower appreciation will be, and that's better for everyone.  Except the wholesalers and true flippers.

Marcus Auerbach · Answer

I hope you are right! It seems to me that the corno anxiety has gone way down since last April, people just deal with it now. So I don't have a good feel for how many people are held back by Covid. If that is a considerable number, that would be great! We will certainly see some of the 2.7 million forbearance cases pop up on MLS!

Happy to say I personally got a rental property under contract yesterday, a bit smaller than I like it, but in an excellent area, so that certainly lifted my spirits!

Marcus Auerbach · Answer

Hi Zachery, I remember Cardone saying that - don't agree with him that often, but for Milwaukee he is definitly right: 99% of new construction are in the suburbs way outside on farmland. They are usually 1-5 acre lots and very low denity, but high price. In the 1960s we bulit subdivisons here with small lots, high density, city water/sewer and low cost. This is where the city planning has failed. This is where they backed us into a corner.

My mom moved to Portugal and they are still living in the past, much of their thinking is still based on the old ways when you had the padrons own the land. Land never gets sold from the family, it's passed down to the heirs, to the 4 kids, 16 grandkids etc, before you know you have 64 owners on title and they all insit on 100k each, so they end up with absurd asking prices for useless wasteland (seriously) and nothing ever sells! The rest of Europe is a bit more normal, but the market is less liquid, most people buy or build one house in their entire life.

Greg Scott · Answer

My crystal ball is always cloudy, but here is my prediction anyway...

By mid-year COVID fears will start to subside and day to day life will start to get back to normal.   Some people that were fearful to move start changing their minds.  Also, those that were in forbearance now start to consider selling to get out from under an increasingly large mortgage while home prices are high.  Instead of gridlock, I think the ice dam may break and we'll see a flood of new product.

Zachary Beach · Answer

@Marcus Auerbach I love the question. My first though was to how real estate was in ￼￼Europe for centuries (to my understanding maybe I’m wrong) that very few people would sell property it was either inherited or gifted by a king or the like for serves. I don’t think it will get to that level in the near future but it seems to me there is ￼ precedences for people hoarding real estate in particular land. I think some people many on bigger pockets already have the buy never sell mindset. I also believe enough people inherit properties and then sell to keep some inventory on the market but with tight inventory prices will be high by nature. Part of the problem is that there is a massive shortage of good contractors and to much cost and regulations from the government in many markets that are most tight on housing. I saw that Texas cities have had some of the least appreciation this year because they are actually building houses. I also remember that grant cardone on the BP real estate podcast mentioned he likes to buys in dem cities because they make it so hard to build new units that the properties appreciate more and less new competition comes in.