Real Estate: Price, Supply and Demand

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So it’s no secret that the real estate market is super hot for sellers right now, unlucky for buyers. And it’s also now clear that there is an enormous line of container ships trying to get goods into America. If you’ve flown over the long beach port or Los Angeles port, you’ve seen the boats stacked up almost so far as the horizon. So how does this relate to sky-high real property values? Let’s break down the relationship between the supply chain problem that we’re seeing right now and high real estate values. To understand this, let’s dive into what’s going on with container ships. So shipping is the least expensive way to move goods around the world. Plus for this reason containerships have got increasingly big and now they’re humungous!

Thus they’ve grown really quickly. Whereas ports, can’t keep up with the pace of the increasing dimensions of these container ships. Thus we’ve got bigger ships carrying more goods. This is stressing the ports of entry. And then you throw a global outbreak in the mix where the world goes on a shopping spree, we’re all cooped up at home. We’re all shopping like there’s no tomorrow. Now there’s a ton more goods being shipped. And so the ports were already somewhat stressed with larger ships, delivering in more goods and growing beyond recognition. And then you spew a shopping spree over it. You can imagine what’s likely to happen. We’re gonna get bunged-up at these ports. And when one gets clogged, it’s like being on the freeway. For all those heading down the freeway and you approach a logjam.

And the cars start to slow down and then pretty soon it’s at a standstill and you’re creeping just to get into this smaller area of motorway. Well, the same thing is taking place on all the ports around the US. These are generally jammed up and one little jam  clogs everything up. It’s a very precise system that each uses to get ships in and out. In addition to one little jam up, backs upwards everything. So we have now a perfect storm brewing right now where there’s a ton of folks shopping online a lot more than in the past. And the ports are already backed up and clogged and they’re trying move products into a clogged system. So this is kind of an overview of what’s happening with our ports of entry and why we have these ships stacked up. In addition to really this is a major driver of inflation right now. So how really does this relate with the real estate market?

Well, a lot of the products that go into building a home are shipped from overseas. Things like doors, windows, taps, pipes and wires, all these kind of things go to make a home. And so it’s taking longer and longer for goods to arrive. So if you’ve been embarked on a remodelling project on your own home, or if you’re a company building homes, you’re seeing this directly, you’re seeing that rather than waiting, say, a month and a half for your windows to arrive, you’re holding out six months so they can arrive. So it comes down to time is money. With rebuilding a home, building a new home, remodeling a home, it takes longer and it also costs more money because these goods are going upwards in value because they’re in high demand. They’re harder to get now. So this is all triggering the cost to rise and time to rise and time equals money.

So the holding costs of the land that you’re building on or the holding costs of real house that you just purchased, that you wanna remodel before you move in. All these things require a lot of time. They cost far more cash. How this is translating into higher values in real estate market are that, the homes who have already gone through this process and that are complete and also nice and finished, you know, fully remodeled, properly designed or a new home, they are fetching high, high prices, higher prices than they probably should get because they bring this extra value to the consumer where they don’t have to deal with those long delays. They don’t need to deal with trying to work with contractors who are super busy and deal with getting supplies and goods to repair their home.

It’s already done. Thus, there’s a premium they’re willing to offer for that. So we’ll see in the real estate market that the number one driver of high prices right now is the turnkey, new homes, the remodeled homes, ones with the latest and greatest bells and whistles, all mod cons, those ones are attracting those buyers who are just desperate to get a place and they have a ton of money. Thus they’re throwing crazy prices at it. And that pulls up the values of everything else. Another dynamic playing out there is the lack of new homes being built. There’s not enough new homes being built in the country to keep up with the human population during the great recession. There was a huge downturn in construction. So everyone stopped building all the crews went home and it took a while to build it again up.

As we begun to recover from the great recession, we wanted to get started on building more homes. It took a while to get that engine revved up. And in the meantime, the population hasn’t stopped growing the need didn’t stop growing. Thus there was always a lag in homes being built to support the population. And it also really got frustrating when we went through the truly great recession. In addition to that, as it’s slowly returning upwards to speed, it’s still behind the curve. And then to make things worse, we’re having these supply chain issues where it’s becoming even harder to build these homes in a way that’s fast enough to keep up with demand. So that’s the connection between supply chain problems that we’re experiencing right now. And the increase in real estate values.

Right now there are so many things pushing these values up so immerse yourself into the various dynamics that are at play right given that are making this happen beyond just the source and demand. We all know that there are not enough sellers that want to sell, and there’s a huge number of buyers that want to buy, but there are several other influential factors. We want to really examine what those are to see if there’s whatever we’re absent, that we could find valuable to maybe help us in this situation.

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