"I was going to buy a house to live in...and I have the money...but because there is no supply I am now homeless living on the street."
...said no one ever...
In discussions about the housing market, supply is often cited as the main reason a housing crash isn't on the horizon.
But this focus on supply alone misses the mark.
The real key lies in the balance of supply and demand.
And more importantly, it's crucial to understand what drives demand: affordability.
Understanding the Balance: Supply and Demand
Let's break it down with a simple scenario:
If you can afford a $250,000 house and the market is flooded with homes priced at $200,000, supply is indeed a crucial factor.
However, if all available houses are priced at $350,000, supply becomes irrelevant because those homes are out of your reach.
This is where demand—driven by affordability—comes into play.
What Affects Affordability?
- House Prices: Currently, house prices are at an all-time high.
- Jobs/Income: While jobs and incomes are also at record highs, unemployment is starting to rise.
- Interest Rates: Interest rates have nearly doubled compared to two years ago.
The Real Metric to Watch: Unemployment
Despite high job numbers and incomes, the rising unemployment rate is a critical metric to monitor.
Major corporations are leading the charge with layoffs—names like John Deere, Tesla, Amazon, Nike, UPS, Ford, and GM are making headlines.
As these large companies reduce their workforce, smaller companies that depend on them will inevitably follow suit.
The Impact on Demand
With rising unemployment, fewer people will be able to afford homes, even if supply remains unchanged.
This decreased demand, driven by reduced affordability, is what could truly impact the housing market.
Preparing for Opportunities
This isn't a scenario to fear; it's one to prepare for and seize.
When I left my W-2 job on November 7th, 2008, to dive full-time into real estate, it was amidst a challenging economic climate.
Yet, four years later, I had amassed a portfolio of 450 houses.
The key was recognizing the interplay of supply and demand and positioning myself to take advantage of the market conditions.
Remember, understanding and leveraging the real drivers of the market—supply and demand—especially through the lens of affordability, can turn potential challenges into profitable opportunities.
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