The Housing Market Paradox: Low Supply, High Demand

The housing market is experiencing a paralyzing paradox: demand is rising, but homebuilding companies no longer have the means to supply as they did in years past. This is the result of a combination of factors, including insufficient securing of land, not filing permits, and a shortage of labor (which could be exacerbated by the Trump administration’s measures against illegal immigration).

Prices are reportedly rising at twice the rate of inflation, and more than twice the rate of average hourly pay in the United States. Although that is incompatible with the affordability for first-time home buyers, it is generally compatible with the needs of established empty nesters and baby boomers. This naturally alleviates the supply constraint, because developers target these demographics by building high-service, luxury condominiums in major markets.

Market conditions are also ideal for owners looking to sell their homes. “When [boomers] sell their big place, they’re cash rich and it becomes all lifestyle driven,” said Peter Wells, a partner at Real Capital Solutions, a developer of a luxury condominium in suburban Dallas. However, it may be a less than ideal time for renters, as rent continues to rise throughout most parts of the country. And even though builders are increasing construction of apartments, most places have yet to reach the heightened demand.

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