According to Realtor.com, in February of 2022 the median listing price of homes in the United States hit a record high at $392,000. Indeed, even those whose research for home buying is currently nothing more than perusing Zillow listings on their lunch break have likely noticed that home prices have skyrocketed as of late.
Vexingly for many, while housing prices have climbed, supply is continuing to be tight; the number of newly listed homes in February declined by 24.5 percent compared with the year prior, resulting in fierce competition and higher prices within the single-family home market.
It would be difficult to discuss any trends that have occurred over the past few years without mentioning the Covid-19 pandemic, and it has certainly also played a role in the rising prices. Lockdowns and a shifting culture to remote work have changed the way we function in our living spaces, creating a demand for more space that has seen many people decide to leave more urban locations in favor of the suburbs where their money can go further.
Additionally, a growing interest in the market from private equity firms have led some to place the blame on the shoulders of Wall Street. However, according to Mark Hauser, founder and co-managing partner of the hybrid private equity fund manager Hauser Private Equity, neither the pandemic nor private equity firms are the drivers of this supply and demand issue. Instead, it is a trend that started as far back as the Great Recession, and continues to be exacerbated by current conditions.
According to data from the United States Census Bureau, in the four decades prior to 2008 an average of 1.53 million houses were completed each year by builders. Supply and demand were able to remain balanced at that rate, but as the bubble built in the early 2000’s there came a number of years that were categorized by a grievous amount of overbuilding.
We all know what followed in the late aughts: the bubble burst, and the resulting financial crisis devastated the housing market. Although much recovery has been made to the economy since that point, between 2009 and 2021 the average number of new homes built per year dropped nearly 40 percent to 936,000 meaning the housing market’s supply never fully did.
Builders, observing the houses sitting empty as a result of the overbuilding in the years leading up to the Great Recession, became reluctant to begin operations again, while others were driven out of business. Without the demand for work construction workers sought other industries as a source of income. All of this has meant that for a number of years there has not been enough supply to meet demand.
According to estimates provided by economists at the mortgage guarantor Freddie Mac, in 2021 the United States was short 3.8 million homes, with starter homes of 1,400 square feet or less being in particularly short supply. The report found that in 2020 the number of new entry-level homes constructed per year was less than 20 percent of the amounts completed in the years of the late 1970’s and early 1980’s.
Additionally, while not the singular driving factor the pandemic did further exacerbate the situation. Supply chain issues in particular have had a continued negative effect on the housing market’s supply as home building materials have experienced the same rising prices and bottleneck issues that many other industries have encountered.
Compounding this are still other factors, including a reluctance by older generations to sell their homes since the start of the pandemic and an increased demand for second homes among more affluent Americans.
It has also been popular as of late to cite institutional investors as a reason for the lack of supply. Indeed, the pace of acquisitions made by private equity firms is accelerating –– in 2020 institutionally-backed firms bought the most homes on record compared with any year prior. In particular the asset class of single family rentals has exploded since the endings of the Great Recession, as it was a virtually non-existent space prior to that point.
However, those acquisitions still only accounted for .14 percent of all homes purchased that year, and while 20 percent of all homes purchased nationally today are bought by investors, only one to two percent of homes are bought by larger investment firms; roughly 400,000 single family homes. Zillow has estimated the entire housing market in the United States to be $36.2 trillion, making the value of single family rentals owned by institutional investors less than a tenth of a percent.
The current housing market is certainly a difficult one to enter for those looking to purchase their first home and who have income in the lower to mid-range, but there are still some ways to take advantage of this point in the cycle. When compared with other historical trends, mortgage rates have remained relatively low, and the demand for starter homes has opened the doors to a number of programs designed by mortgage lenders to help first-time homebuyers lower the cost of their mortgage.
While many of these trends had begun well before the coronavirus pandemic ripped through the world, the level of uncertainty in a number of areas has certainly been unprecedented. However, by remaining flexible and open to advantageous opportunities, home-buying success in today’s climate can still be found.
About Mark Hauser
Mark Hauser is a private equity investor and fund manager with over three decades of experience in investing and company operations. He is the founder and co-managing partner of Hauser Private Equity, a hybrid private equity fund manager headquartered in Cincinnati with operating offices in Los Angeles and Chicago. Since its inception in 2008, Hauser Private Equity’s five funds have invested over $350 million in capital in privately-owned businesses nationally, focusing on direct co-investments in the lower-middle and middle markets.
Mr. Hauser also founded HAUSER Inc. (formerly The Hauser Insurance Group), a national full-service brokerage firm focused exclusively on the needs of private equity firms and their portfolio companies. Initially purchased as a small insurance agency in Cincinnati, today the company has grown significantly in scope and scale, having a presence in cities across the country including Atlanta, Chicago, Kansas City, Los Angeles and St. Louis.
Prior to launching Hauser Private Equity, for a number of years Mark Hauser held the position of vice president at Reynolds, DeWitt & Co., a privately-owned business involved with S-corporations and multiple partnerships. He has also held board positions for a number of businesses, including those in consumer goods, food & beverage brands, digital advertising, textile manufacturing and government-contracted security and defense businesses.
A native of Cincinnati, Mr. Hauser attended Miami University where he earned a Bachelor of Science degree in finance from the Farmer School of Business.
About Hauser Private Equity
Hauser Private Equity is a hybrid private equity fund manager based out of Cincinnati, OH. Founded in 2008 by managing partner Mark Hauser who oversees its capital formation and investment selection, Hauser Private Equity focuses on direct co-investments in the lower-middle and middle markets. The firm’s managers target innovative companies in verticals including industrials, financials & business services, healthcare and consumer goods, leveraging their collective multi-industry experience to identify targets through due diligence, aid in growing companies and enhance returns. Continuing the successful strategy of Hauser Capital Partners, Hauser Private Equity partners with control buyout funds and selectively with managers of growth equity and special situation funds and has invested over $300 million in capital in privately-owned businesses to date.