On the demand side, demographics are the big, invisible engine driving the machine. Millennials are the largest generation in American history. Having been too financially constrained to buy houses at a normal rate in the previous decade, many of them are now storming into the housing market. Some might feel a desperate need to escape their current apartment, basement, or home after the coronavirus pandemic closed much of the world for more than a year and led to an outbreak of mind-numbing cabin fever. To make things even wilder, homebuyers are flush with cash after a year in which the national savings rate soared to its highest level in decades. On top of all that, interest rates, having basically declined for most of the past 40 years, recently touched new lows, luring more buyers into the market and encouraging higher bids.
More generally, the pandemic turned the kaleidoscope of U.S. migration, and many families—especially many high-income families with work-from-wherever jobs—are shopping around for sunny, spacious real estate and bidding up prices wherever they land. “We’ve never seen migration like this,” executives at Toll Brothers, the real-estate company, recently said on an earnings call. “Just shy of half the buyers are coming from out of state” in the hottest markets of Idaho, Texas, and Florida. When people leave multimillion-dollar houses in, say, Los Angeles to plunk down $1 million on a house that was worth $500,000 a year ago, they turn a merely frenzied housing market into a once-in-history, hair-on-fire, what-the-hell-is-happening bonanza.
Supply issues are just as important. Years of insufficient building and a construction pause during the pandemic have led to low inventory. Seniors, who in previous decades sold their homes to downsize, are now more likely to “age in place,” which is keeping millions of homes off the market. Plus, some builders are putting their projects on hold because of the sudden tripling of lumber prices, which could delay the construction boom this country so badly needs.
The 2021 housing craze feels as sudden and shocking as the pandemic, but it was decades in the making. The emergence of the huge Millennial generation in the 1980s made strong housing demand in the early 2020s entirely predictable. The Great Recession’s clobbering of the construction industry made today’s housing shortage equally foreseeable. Indeed, McBride, the economics writer, saw all this coming from a mile away. So, I asked him, what does he see happening next—a rise, a crash, or a plateau?
“It’s not clear at all to me that things are going to slow down significantly in the near future,” he said. “In 2005, I had a strong sense that the hot market would turn and that, when it turned, things would get very ugly. Today, I don’t have that sense at all, because all of the fundamentals are there. Demand will be high for a while, because Millennials need houses. Prices will keep rising for a while, because inventory is so low.”