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When is the real estate market going to crash?

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We are not experiencing an artificial price bubble. This is a very real housing shortage. Unlike bubbles in the past, like the Dutch Tulip Mania in the 1600s, housing is a necessity, not a luxury. Everyone needs a place to live. As the human race continues to populate the world, we will need more and more places for people to live. Over the past 70 years, the population of the USA has grown by about 23-plus million people every decade. During the 1950s to the 2000s we were building 20-plus million homes per decade to keep up with the rising population. After the 2008 financial crisis, builders took a very big hit and stopped building. There was an oversupply of homes available during the 2008 recession, which is the reason why home prices went down. During the 2010s, only 6 million homes were built. In the 2020s, they are projected to build 17 million homes in America. This is still a massive shortage. For this reason, prices for homes are unlikely to come down anytime soon.

Another factor that is making home prices rapidly climb is the cost for materials, labor, and building fees. During the COVID-19 pandemic, lumber mills in America shut down. There was a huge bottleneck due to labor constraints. There have been supply chain issues up and down every industry because of the pandemic. Have you tried to purchase furniture or appliances lately? Some places are four to six weeks behind! Sometimes more! The cost for 1,000 board feet of board has risen dramatically from September 2015 at $220 to $590 in September 2020. In September 2021, the cost of 1,000 board feet came down to $584.70, but it is still dramatically higher than where it was. In 2019, $50,000 could buy enough lumber to build 10 houses. In 2021, that $50,000 would be able to build a little more than two houses. Other building materials besides wood have also gone up.

Labor, materials, and building requirements have become even more onerous for developers. Every newly constructed home is required to have solar panels installed. Construction costs have risen, too, because of the shortage of skilled labor. Going through the city permitting process on a simple renovation or even an ADU project can take a year reviewing plans before construction even begins. California has come out with a few bills to expedite the construction of affordable housing, yet these bills don't always have the desired effect or impact on the market. Local municipalities are understaffed, overworked, and can barely keep up with the review process. All of this adds to housing prices.

These factors seem to indicate the real estate market will continue to climb.

Owen Schwaegerle

San Luis Obispo


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