There’s some bad news for those hoping for a fix to the housing market. There are signs that the squeeze is going to get worse.
If you cannot think of buying a new house right now, it’s going to be harder in the future. If you are hoping to sell, it’s a great time to do so, but then you have a problem: You need to live somewhere. That’s why so many people today are frozen in place, unable to even consider moving for a better job because it means giving up a locked-in low rate for a sky-high new rate in the midst of a price explosion.
That’s if you can even find a house on the market. Both housing starts and new building permits fell off the cliff in May (down by 5.5 percent in starts and 3.8 in permits month over month), and the previous month’s data was revised downward. This means we’ve faced three months of falling trends in both areas that constitute all new supply for housing. There are no signs of improvement.
That’s the supply side. The demand side pushes in the opposite direction with well-heeled buyers in constant bidding wars with cash buyers for anything that comes on the market. The big institutions are in the market in a way never before seen, with a familiar pattern of house-flipping done by major investment houses.
The single most useful tool in economics theory is the idea of supply and demand as the basis of price. The model was described as early as the 16th century and became conventional analytics only in the 19th century. The socialists of the time never accepted supply and demand, oddly enough. In fact, supply and demand is all we need to understand why all this is happening: intense demand on the buyers’ side, and restriction on the supply side. We are at lower levels of new construction in the post-lockdown period.
The result is far beyond anything we ever saw in 2008. If that was a bubble, there are no words for what is going on right now.
