The Great Housing Lollapalooza: Why It’s So Hard and Expensive to Buy a House Now

The current housing narrative being pushed onto us goes something like this, “We have a housing shortage! We need to build more houses,” along with, “let’s blame the Nimbys for blocking more construction” and so on.

Let me be clear; I’m not saying that urban metropolises don’t have issues with construction, zoning, and Nimbyism. But this article isn’t about city housing issues.

It’s about the spread of homebuying difficulties, bidding wars, and rising home prices found in every nook and cranny of our country (when they used to be city problems).

The real reason it’s become so expensive and difficult to buy a home is because of a crazy lollapalooza effect– an extreme outcome resulting from a bunch of crazy shit coming together at once and psyching people out.

Here are the major factors that contributed to our current housing woes:

  • Pandemic supply chain disruptions
  • expansion in remote work
  • migrations away from cities
  • economic stimulus
  • the lowest interest rates on record
  • the rise of Airbnb
  • the rise of REITs
  • the rise of corporate ownership in single family homes (SFHs)
  • the growing population of the “wealthy”
  • and finally psychological factors- fear, herd mentality, FOMO, and scarcity bias (to name a few)

Now, let’s start at the beginning of the COVID-19 pandemic because that’s when all the crazy shit intersected to create the housing lollapalooza.

First, a pandemic is declared. This creates fear; especially urban fear. Because living in a big city is about the worst place you can live if there’s a deadly pandemic. Anybody who has an imagination knows this; duh. Ever seen any apocalyptic movie?

This leads to a mass exit from urban areas. Many people decide they’re going to relocate. This mass relocation happens all over the country- there’s moving from here to there and there to here; moving, moving, everywhere.

Meanwhile, production stalls causing the price of nearly everything to skyrocket. Homebuilding supplies and materials rise to all-time highs.

Then, remote work goes viral. Companies are forced to allow their employees to work from home because what the fuck else could they do? The huge boom in remote work meant that many people didn’t have to live where they worked anymore. This created even more migration and moving. Especially for rich tech workers who could optimize their life by moving to cheaper locations while still making an awesome salary. There is nothing wrong with this on the surface; obviously it is a smart thing to do! But these wealthy remote workers relocated at the same time as so many others… lollapaloozing all over the Sunbelt and places like Portugal and Greece[i], with their quarter-zipped sweaters in tow[ii].

In addition to this, the entire population is having an existential crisis. People are asking themselves, why do I live here? Am I happy? Should I take this life-pause as an opportunity to move and start over? For many, the answer to these questions induced a personal great reset which led to even more migration and moving.

Most of these movers and relocators went to places with nice weather (excluding too-expensive California). This shift was already underway, even before the pandemic. If you’re having an existential crisis about the quality of your life and you want to re-orient toward health and happiness, weather plays a big role. That’s because health and happiness are contingent upon nature, outdoor activity, and exercise. So naturally, nice weather led (in part) to accelerated population growth in places like the Sunbelt (or Portugal). In addition to the beauty and good weather, they were cheaper than New York or California and they offered hope for increased life satisfaction.

Behind these scenes, the Federal Reserve quietly tries to tame the chaos. To prevent catastrophic economic fallout, the Fed pumped money into the economy through stimulus, PPP, and lower interest rates. This kept the economy moving and prevented a depression-style disaster.

From a common-sense perspective, the Fed’s decision to bring interest rates to their lowest in history fueled the lollapalooza effect the most[iii]. It created an enormous surge in investor appetite and consumer borrowing.

The lower it costs to borrow money, the more people want to borrow money. And not just people. Corporations too.

Enter Airbnb. Airbnb headlines had already piqued our short attention spans, showering us with stories of newly minted millionaire hosts. More and more of us wanted in on the game. Buy a house (or five) and I’m rich? Hell yes… say the masses. But, you see, corporations want in on this action too[iv]. Remember those low interest rates? Everybody’s out there thinking the exact same thing, “This is the perfect time to buy investment properties, because it’s practically free, right?”. Corporations, flippers, and wealthier (second home) buyers were competing at break-neck speed to purchase the same homes that regular homebuyers wanted; especially first-time buyers.

By the spring of 2022, the NAR and Forbes reported there were 16 million vacant homes in the U.S[v]. Researchers are now finding that Airbnb does in fact impact housing; especially by increasing long-term rental rates[vi]. Well, who woulda thunk?

Now, all those newly minted (and old) millionaires need to put their money somewhere, right? Yes, they do! Corporations, investors, and rich people all have a money storage problem. They can’t just store millions of dollars in the bank. They really do have to put it somewhere else! And these “pandemic years” were uncertain times. In times of uncertainty, people want to put their money into real assets. Instead of dumping their money into the stock market, many people purchased land, farm ground, housing, etc. That’s because real assets are real stores of value. Additionally, if shit really hit the fan, real assets can produce income. The more wealthy people you have, the more money needs to be stored… and this leads to more home purchases by people who don’t always care how much those purchases cost. To them, the price/cost matters less. Comparable prices, market value and all that flew right out the window.

Finally, adding to the foray are the institutional investors purchasing single family homes (SFHs). This included Zillow and Opendoor (Supposedly, Opendoor wants to be the “Amazon of houses”). Remember, interest rates are at historic lows. And corporations are salivating at the potential profits reaped from both short-term and long-term rentals. BlackRock and Pretium Partners are some of the better-known names but there are many others. We also have real estate investment trusts (REITs) competing too. REITs are essentially bundles of homes owned by groups of individuals and are often traded on the stock market. (REIT groups will try their damnedest to convince you it’s a better way to own real estate than owning actual real estate just buy our REIT stock!” they yell. Maybe it is; but then who owns all the houses?)

Corporate ownership of single-family homes (SFHs) began after the housing crisis of 2008. Since then, their share of homes has become larger and larger. During the pandemic years, they bought as many as 30 percent of homes in areas such as the Sunbelt[vii]. Additionally, As noted by Slate, (and me) the problem isn’t that corporate investors are buying up all the houses, it’s that they’re buying the ones that first-time homebuyers are trying to buy (the small and cheap ones)[viii].

Many corporations and developers buy homes just to tear them down and build new ones too. Because that’s how they keep getting richer, you see? Read my recent poke at teardown culture here.

All the factors discussed above intersected during the pandemic years (2020-2022). It created a full-on housing lollapalooza accelerated further by psychological tendencies such as scarcity bias and herd mentality while rejecting the notion that home bidding wars and sky-high values were risky. FOMO unhinged.  

Yet some narratives are still perpetuating the “housing shortage” myth.

Here’s a graph I found from the website, Eye On Housing.  It shows our rate of population growth is in decline.  

While our population growth is decreasing, I think population and housing have become somewhat de-coupled or untethered (partly because of Airbnb but also because of a rise in mixed family households/family compounds). Nonetheless, even Ivy Zelman (probably the smartest housing data person ever) agrees that we do not have an actual shortage of homes and we’ve already overbuilt from a population perspective.

Here’s another graph. This shows the number of homes sold each year, from 2005 to today. You can read more about it here, if you want.

As you can see, many homes were sold during those “housing shortage” pandemic years (2021 was almost as many as in 2006). To say that less homes were up for sale is just plain wrong. Instead, what really happened, is demand surged so strongly that inventory couldn’t keep up. This made housing inventory appear to be scarce. Demand was the issue, not inventory.

Finally, here’s a graph from The Economist showing the rise in the number of millionaires.

The amount of rich people is growing. I don’t have anything against rich people; in fact I’d love to be one! Here’s the problem though- as already discussed, rich people need to put their money somewhere. Not only do we have more rich people, but they became richer during the pandemic. At exactly the same moment their wealth was increasing the most, the fed lowered interest rates. The result was a bunch of rich people who were able to invest their money in housing for next to nothing. The confluence of more wealthy people, getting wealthier, plus low interest rates sparked insane demand for housing across the entire country. Normal people were never going to be able to rationally compete. Rich people and corporations don’t need to care about comps or market value…

So you see, the Great Housing Lollapalooza is why it’s become so hard and expensive to buy a house (if you want to live in it, that is).

And now what? What are normal homebuyers to do?

So far, even with increased interest rates, houses are still being bought (by whom, I wonder?).

As of a couple weeks ago, CNBC implied that the housing market had possibly bottomed.

Really!?!? The housing bottom is in after all that!?!? This is as cheap as housing is gonna get!?!?

I wish I had the answers.

I wish I could tell homebuyers, “yes, wait” or “no, don’t”.

Truthfully, I don’t really know what’s going to happen next and neither does anybody else.

My gut says, unless you find the most perfect-for-you house ever, just save as much cash as you can.

Don’t give up, but take a search break if you need to. Because the housing lollapalooza is truly absurd.

In the meantime, tell me, do you want to buy your home from a corporation? Wanna rent or buy your house from Amazon?

Forever curious,

HouseRat Zero

[i] On Sunbelt migration, see here, here, or just Google it! See how Portugal attracted digital nomads here and what’s happening now here.

[ii] Apparently, quarter-zipped sweaters/pullovers are the new status symbol for men. If you really need to, read about it in The Guardian, here.

[iii] To see a graph of the Fed’s interest rates over time, go here and click “max” on the graph timeline.

[iv] Here’s an interesting article on corporate appetite for Airbnb purchases.

[v] The NAR’s and Lending Tree claim all the empty houses don’t necessarily spell trouble, read more here. Forbes discusses it here.

[vi] I originally read an interesting piece on Airbnb in Fortune magazine, but now I can’t find it. Luckily, Yahoo still features the story here.

[vii] You can download this crazy corporate owner/landlord report here. Additionally, some sources are claiming corporations will own as much as 40 percent of SFHs by 2030, such as here. Obviously, this is problematic on a grander scale than I care to get into right now. Here’s my new post on the issue of rising corporate homeownership. There is some information overlap between these two articles but I felt it was necessary.

[viii] The scale and wealth of corporations made competing with them next-to-impossible. Luckily, Zillow has exited the playing field. Unfortunately, they still sold most of their housing stock to institutional investors instead of the homebuyers who were desperately trying to purchase homes. The thing is, corporations simply do not have the same goals or needs as normal people. Their goal is profit and it we should not forget that.

As a final note, I’d like to thank Charlie Munger for coining the term “lollapalooza effect”. Who doesn’t want to say lollapalooza?

Leave a Comment

Your email address will not be published. Required fields are marked *