💼 Affordability

briefcase | invest smarter | Issue #118

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🙋🏾‍♀️Where are all the 200K homes?

Last week we asked if factory homebuilders are the new Henry Ford of real estate. We think so.

That's because our biggest challenges in real estate are two-fold: supply and affordability. We can speed up supply with factory-made homes, but what about affordability?

This will be part 2 in a series we just made up on the spot called: How The F#$@ Can I Afford That?

If you missed part 1, catch up.

The average cost of a home in the U.S. is $327,000. And, in Canada, it’s $716,000. Real estate prices over the long term have always increased, but since 2013 we've seen a massive runup in the cost of housing.

Couple this with the fact that mortgage costs are rising faster than the blood pressure of regional bank CEOs, and you can see that we have a serious problem on our hands.

This leads us to nostalgically reminisce: Ahhh, remember the good old days of the $200K home? Wasn’t that nice?

The 200K home has actually completely vanished...Or gone in 60 seconds for you cager fans. The man is a national treasure.

Just check out this chart showing home sales by price point.

Yikes, we went from 200K homes comprising 45% of new homes sold in 2010, to now 0%! The source of the problem is easy to understand, but the solutions...not so much.

The problem we face is that it's too costly and time-consuming to build new homes. Consider the fact that it costs builders 40% of a build just on regulations, fees, and red tape. That’s not even shovels in the ground.

So ask yourself, are builders incentivized to build cheaper starter homes?

It's simple economics: If it takes more time and money to build, the end product for consumers will be more expensive. This reality has been putting upward pressure on homes for decades.

Further, and partly due to the above disincentive to build affordable homes, the size of homes has incrementally increased over the decades. This makes homes even more expensive to build due to higher square footage.

We may be in for a downsizing trend in the future, but that’s a song for another time.

So where have all the affordable homes gone? And, ultimately, is there any hope that they’ll make a comeback?

The answer is, surprisingly...Yes! They’re making a massive tiny comeback.

Tiny Home Movement: Big Opportunity

Tiny homes are now a big business. According to reports, the tiny homes market is expected to reach a total value of almost 7 billion by 2029, at a CAGR of 3.5%.

TLDR:

• The cost of a tiny house ranges from $30,000 up to $150,000.

• 23% of all Americans said they would, or would definitely consider, living in a tiny home. For the age group of 18-34, that jumps to 34%.

• Almost 700,000 tiny homes are sold every month in the U.S.

• A tiny home uses 7% of the energy that a traditional home does.

The idea is that having less space and stuff in our lives creates room for more important things. And it’s getting harder to argue with that.

There are a few tiny catches, though: Governments and financing.

Government regulators and city planners haven’t caught up to the mass demand for tiny living, and in many cases these land uses are prohibited or expensive to rezone.

Secondly, getting financing on a tiny home is also challenging because it doesn’t fit the traditional mold of a real estate asset.

Things are changing, building codes are getting updated to accommodate smaller living spaces, and lenders are rolling out specialized products specific to tiny homes.

So What? To answer our original question: Where have all the 200K homes gone? They've gone tiny, and we should all pay attention.

As we enter a credit winter with bank closures and high rates, lower priced assets such as tiny homes should become a sweet spot for investors and lenders alike.

Weekly Real Estate News

🕺🏾Fed Slowdance: Despite raising rates 25 bps amidst banking turmoil, the Fed hints the rate hike dance may be coming to an end — CNBC 

⚡ZIRP: Although Fed is signaling a rate pause, the days of ZIRP (zero interest rate policy) are dead, RIP — Briefcase Eulogy

🦘 Jump! How high? Home sales spike 14.5% in February as prices drop for the first time in over a decade — CNBC

🏢 Post Office: U.S. office market could have 330M SQT of obsolete space by the end of the decade that needs to be repositioned — Costar

💸 Borrow Some Change? SVB is officially out of money, but don't worry, they're ESG complaint — Bloomberg

🚪 Knock-On: But, the SVB implosion may actually help cool rising rates, making debt more accessible to consumers — Zillow

💰 Down Downpayments: Homebuyers made a $42K down payment in January, the lowest level in two years — Redfin 

📈 Up Rents: February was the 7th month in a row with rent increases for 0-2 bedroom properties (3.1% Y/Y) — Realtor.com

Up Next On Briefcase...

We will unveil designs for our tiny home bathroom/office combination.