How We Know Greenville Home Values Will Remain StrongJul 01, 2022 04:25PM ● By Dalton Elliot
You’ve probably seen the headlines about the housing shortage in America that are a big reason behind the dramatic increase in home prices.
Local stories here in Greenville, along with nationwide trend pieces in the Wall Street Journal, CNBC, and USA Today (to name a few) tout the massive shortage of the supply of homes, compared to demand. Realtor.com touts the gap as 5 million homes or more.
But is that number really true? Zelman & Associates, a respected real estate data and research company, contends that there is no gap in the number of homes needed, hanging a warning flag over the current housing market.
Is the real housing supply shortage 0? Or is it 5 million? The true number is somewhere in between — and the chasm is so vast because of a changing societal trend that many people looking to invest in real estate may overlook.
The data behind the discrepancy
One of the sociological trends that got a lot of attention during the pandemic was the work from home trend. While many have returned to the office, this trend of remote work has shown some staying power. And one of the implications of this trend is that many people looked for new housing with room for a home office, often moving out of apartments and into single-family homes.
But another surprising trend emerged post-pandemic. The number of households formed in the United States actually decreased from around 1.6 million per year to 1.3 million, according to the St. Louis Fed. This marks the slowest growth in household formation in 160 years, according to Pew. One big reason this is happening is that 20 percent of households are now multigenerational — up from 12 percent a few decades ago.
This is vital, because it’s clear that the projections of a home shortage of 5 million don’t account for this significant slowing in household formation. This means there may be more opportunities to purchase a home than the headlines make you believe.
That means there’s plenty of good news for people looking to invest in real estate — whether by buying a house or through fix and flips or single-family portfolios — as well. Buyers can be confident in these three signs of a continued strong market.
What we know for sure
1. Demand is incredibly high. All of the stats we see indicate that demand for housing is strong in most markets in the country. Two stats reveal this. One is the days on market for homes. In many markets (including Greenville), the average is two weeks or less. Typically this average is two months or more. The fact that the market is moving so quickly indicates that more buyers than sellers exist in the market.
Just as importantly, the vacancy rate for apartments is 3 to 4 percent, far below the 9 percent in a typical pre-pandemic market. The fact that demand for both apartments and home purchases is so strong indicates the strength of the market, which should maintain home values for the foreseeable future.
2. Construction is booming yet artificially slow. In a high-demand market, homebuilders have the opportunity to profit by selling homes as soon as they can finish them. And that is certainly happening, both on a local level and with large national firms pivoting toward build-to-rent communities.
However, the speed of this new construction is slowed right now by two key factors — supply chain delays in materials, and difficulty in finding labor. These factors throw a parachute on the construction boom, and the result is that supply can’t catch up to demand. Again, this points to strong home values persisting, because these problems don’t come with quick fixes.
3. A bubble is very unlikely. While things are certainly changing in the housing market, the persistent demand and slowed supply means that a bubble in home values isn’t likely. That’s especially true in markets like Greenville that are experiencing significant population growth.
Will home values continue to increase like they have in the past 24 months? A continued spike may not be in the cards, but growth should continue even if the incline slows.
That means homebuyers and real estate investors in Greenville and other growing markets can buy with confidence (and home builders can build with confidence), knowing that the prices they pay now will lead to homes that keep strong value.
Dalton Elliott is the Director of Inside Sales for Lima One Capital, a lender for real estate investors. Lima One finances borrowers who are building, improving, and stabilizing neighborhoods across the nation. For more information, visit limaone.com.