Unfortunately, buying and owning a home today isn’t as simple as it once was. As the population grows, housing prices are higher than they’ve been in decades, and inventory is low. This combination of factors leaves many struggling to find affordable housing.
While these factors may seem quite grim, the situation might not be as bad as some may think — there are solutions, and people will adapt. Real estate investors can play a role in this by understanding that people will turn to innovative forms of housing, like creating smaller living spaces and embracing shared dwellings. Continue reading to learn how these two solutions will be the future of housing.
Dynamics Currently Affecting Housing
There are several factors that are causing the housing crisis. Here are a few:
Population Increase
First, there is an increase in the population in the U.S. due to increasing birth rates and immigration. As of January 1, 2024, experts estimate the U.S. population to be more than 330 million — a 0.53% increase from the previous year. Throughout the year, experts predict a new birth every 9 seconds and a new immigrant every 28.3 seconds. When factoring in the current death rate, the population is projected to increase every 24.2 seconds.
Stagnant Housing Inventory
Contractors are constructing new houses, but home builders simply cannot keep up with the demand. They also face delays due to material and labor shortages.
Homeowners who refinanced or purchased their homes with low interest rates will hold onto their homes longer. While their homes are worth much more today, homeowners face three issues when selling:
- Displacement: Due to the shortage, people can’t find homes to purchase. Where do people move to after selling their properties?
- High costs: While a person might be able to make a larger profit on their home sale today, buying a different home also costs more. There is no gain or benefit of moving if they can’t buy “more house” from selling and moving.
- High interest rates: Selling and buying a different home leads to trading a low interest rate for a high one. Higher rates lead to higher mortgage payments and interest.
Homeowners contemplate these factors when considering a home sale, and many decide to stay in their current homes.
Demand for Lower Price Point
Home prices have outpaced the increases in inflation over the years. Consider these facts: The median price of a home in 2000 was $119,600, while the median sales price in 2022 was $430,365. That equivocates to paying 3.6 times as much today for a house than in 2022.
Income is also affecting many families today, especially with the high inflation. Look at the income data from 2000 vs. 2022. In 2000, the median household income was $42,148. In 2022, it was $74,580. Adjusting for inflation, income only rose 1.7%. The dollar doesn’t go as far today.
As the home supply shrinks, it leads to increased home prices. Next, factor in the increased mortgage rates prevalent today. These factors combined make homes unaffordable for many people. As a result, many families look for homes for sale at lower prices.
Fortunately, there are alternatives to displacement, and the primary solution is to decrease housing consumption. This involves coming up with creative solutions and alternatives to owning a single-family home.
One option is for folks to delay in purchasing a home. Young adults may choose to live at home longer or rent for a few extra years. One study in 2023 revealed that 68% of adult Gen Z’ers live at home and plan to stay longer than young adults normally would. The average household size in 2023 consisted of 2.51 people, slightly higher than the previous year. This number will likely increase over the next few years to accommodate the housing challenges.
The Role of Real Estate Investors
Successful real estate investors offer solutions to current housing challenges. Focusing on the current market state and future housing options can guide you to the most profitable housing options. The demand for smaller units is the future of housing, while the demand for larger housing will continue to shrink. There are several ways you can be a solution to new demands.
- Build on the fact that people will share homes. Some adults will choose to cohabitate with several people or families. You can accommodate this by converting large single-family homes into multi-family properties. Dividing one home into three, for example, provides a place for three families, each paying only one-third of the expenses. You’ll need a fix-and-flip or rental loan to accomplish this goal, but it will increase the number of units available for people to live in.
- Purchase run-down or outdated homes. Plenty of these are available for purchase, and many are currently vacant. You can remodel the homes to sell or rent as single-family properties. If large enough, convert them to multi-family rental units. Apply for a fix and flip loan and convert these outdated properties to habitable, nice homes for people to occupy.
- Consider developing communities of smaller homes. Smaller housing options satisfy the need for affordable housing options for people struggling to afford larger houses. Investors should focus on building smaller single-family, modular, and mobile home communities. Additionally, building smaller apartments and complexes with more units can also prove profitable for the future in housing. The demand for these homes will only increase as population and housing prices rise. Construction loans provide the funds for developing and constructing new communities of homes.
Dominion Financial specializes in fix-and-flip loans, rental loans, construction loans, and other residential real estate loans. Contact Dominion Financial to learn more about our flexible loan options.
