So today we're going to talk about a US real estate bubble
and be sure to stick around until the end because I have a couple of predictions.
You're not going to want to miss.
So I'm going to stick to three components of a real estate bubble.
The first one is a percentage of people that own versus rent.
Now I'm talking about a percentage.
The second one is population growth.
So think of people when they're born, minus people when they die.
Plus immigration and you get your population growth.
The third component is new construction.
This is all about supply.
first, we're going to start with the homeownership
versus rental percentages, as shown by the Federal Reserve themselves.
And over here on the left side as a percentage.
And this is the homeownership rate in the United States.
And the reason why I want to show you this is because if you're not a homeowner,
you're a renter.
So as these percentages go up or down, it dramatically affects whether your home's
going up, going down or your rents going up or your rents going down.
So if we go all the way back to 1980, as you can see,
we had a homeownership rate of right around 65%.
That means that there were also 35% renters in the United States in 1980.
What I really want you to focus on
is how the homeownership rate went up during this period of time.
Now, President Bush was in office during this time, and he enacted
a policy called The Homeownership Dream The American Dream.
And as you can see, we peaked right about here, which was right around 2005.
What happened after this was the big credit crash,
which we now call the Big Short, which is even a movie.
What's happened since 2005 is we've had a declining homeownership rate,
which has also put much more pressure, of course, on the rental rate.
So this is one reason why we're having rising rent rates
because homeownership rate is declining.
And guess what?
It hit bottom about 2016 and then went up
and then the pandemic, and we all know what happened then.
So the next component during all of this is population.
This is something that a lot of people don't look at,
but population is new demand and this is the natural increase.
So these are people that were born minus people that died, and this is immigration.
What's important to note is that from 2000 to 2021, that there were about 50
million people added to the United States in the last 20 years.
From a real estate standpoint, that's called new demand.
Now let's look at the third component, which is new supply or construction.
Once again, we turn to the Fed themselves
for new privately owned housing units under construction or total units by year.
I want you to focus on here, which is when Bush came into office, he said.
Everyone needs to own a home and everybody started building homes.
And everybody started buying homes with bad credit.
And then, kaboom.
And of course, during that time, no new construction.
In fact, we had a 20 year low.
So really, the housing boom that we're having today
is a result of no new construction for the past ten years.
So now the prediction homeownership rate will continue to drop
because of affordability and construction prices are going to drive the prices up.
The second component is net population and as you saw,
we grew by 50 million people in the last 20 years.
And net population is still going to go up, of course, in the next ten years.
The next factor is new construction.
And as you guys saw,
we just went through a period of very low construction, which is created
the higher prices that we're seeing now, and we're going to see even lower
construction because of all the cost and supply chain issues that we have.
As you guys can see, we're 5.5 million units short right now
of housing that we need just to stabilize
because of the last two decades we lag behind.
And the last thing, of course, is rental increases
and those unfortunately are going to go up a lot.
So rent prices continue
to go up across the United States, and these are national averages.
But just in 2021, we saw a 21.3%
rent growth just in one bedrooms and a 16.7% rent growth and two bedrooms.
The worst is not over, guys.
Now these are big numbers, but they're driven by the fundamentals
on the three components that I just rolled out for you.
So pay attention to those components and be on the right side of this equation.
Thanks for listening.