They don’t build ’em like they used to

Inflation is causing a massive spike in housing prices, and 1st-time buyers are getting burned.

Data Source: Federal Reserve

They don’t build ’em like they used to

Inflation is now at the highest level in 40 years.

Nowhere is that more apparent than in housing, where nationwide home prices are now nearly 50% above the levels seen during the 2006 housing bubble.

If you’re in the market for a new home, you know how crazy it’s gotten. Perhaps you’ve been outbid on a home to somebody offering double the asking price.

What’s happening?

All big problems like this are complicated, caused by dozens of different variables.

But here’s a big one, and it’s simple: We just don’t build enough homes.

  • Millennials are now the largest cohort of working Americans. Many are now approaching 40 years old, and are eager to finally buy a home. When baby boomers were in a similar spot in the 1970s and 1980s, we were building, on average, about 60% more homes relative to the size of the population.
  • The housing bust of the mid-2000s shattered the homebuilding industry, and it simply never recovered. There are a quarter fewer carpenters in America today than there were 20 years ago.

Here’s a quirk of surging housing prices that’s easy to overlook:

If you already own a home, the surge is probably a wash for you, because if you sell a house that’s gone up in value you probably use the proceeds to purchase another house that’s gone up in value.

But if you’re a 1st-time homebuyer, oof. It’s brutal. Rising home prices mean you have to come up with a higher and higher down payment — if you can find a house at all.

It’s time to build.

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Topics: Economy

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