> A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask.
I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".
For NZ, this doesn't hold up when looking at actual statistics.
- Prices rose x4 between 1995 and 2021 (inflation adjusted).
- The total number of households to total number of dwellings remained relatively unchanged over the same period.
- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).
Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).
I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).
US institutional ownership is too low nationwide to be material compared to new housing build rate when considering overall supply shortage. Of note, there is institutional concentration in certain local markets, which diminishes purchase supply in those localities (and potentially contributing to price level firmness in those localities).
When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.
Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.
I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".
For NZ, this doesn't hold up when looking at actual statistics.
- Prices rose x4 between 1995 and 2021 (inflation adjusted).
- The total number of households to total number of dwellings remained relatively unchanged over the same period.
- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).
Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).
I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).