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1/
There's a lot noise on RETwit about this being the "worst" time to buy a Single Family Home (SFH).
Low supply and high demand has caused SFH prices to surge in many markets but housing decisions are rarely based on price alone.
Why? Something we inelegantly call "Utility".
There's a lot noise on RETwit about this being the "worst" time to buy a Single Family Home (SFH).
Low supply and high demand has caused SFH prices to surge in many markets but housing decisions are rarely based on price alone.
Why? Something we inelegantly call "Utility".
2/
What is Utility? It's all the ways a buyer measures the "locational advantage" their housing location has.
Price (or affordability) is only one part of utility.
The other parts are all the things that go into why people choose to live where they live.
What is Utility? It's all the ways a buyer measures the "locational advantage" their housing location has.
Price (or affordability) is only one part of utility.
The other parts are all the things that go into why people choose to live where they live.
3/
These "locational advantages" include - proximity to work, good public schools, parks, water proximity, low crime, information (HSIA), etc.
The greater the utility, the higher the price - since buyers compete directly with others seeking the same "given level of utility."
These "locational advantages" include - proximity to work, good public schools, parks, water proximity, low crime, information (HSIA), etc.
The greater the utility, the higher the price - since buyers compete directly with others seeking the same "given level of utility."
4/
And this utility is not evenly distributed (like great public schools) so high demand and scarce supply push prices ever higher.
With high going in prices buyers forgo some long term price appreciation but the utility inputs have measurable intrinsic value beyond pure ROI.
And this utility is not evenly distributed (like great public schools) so high demand and scarce supply push prices ever higher.
With high going in prices buyers forgo some long term price appreciation but the utility inputs have measurable intrinsic value beyond pure ROI.
5/
So why not just rent when facing high real estate prices?
We get something that I call the Utility Paradox.
Renters also seek the locational utility that drives up real estate sale prices. High renter demand leads to high rental prices. Often to parity with PITI.
So why not just rent when facing high real estate prices?
We get something that I call the Utility Paradox.
Renters also seek the locational utility that drives up real estate sale prices. High renter demand leads to high rental prices. Often to parity with PITI.
6/
And, the rental mkt is often more constrained than the for sale mkt since approx. 75% of suburban mkts are owner occupied.
So SFH prices are high. But buying isn't necessarily a terrible decision given rental alternatives and the relative affordability due to low int. rates.
And, the rental mkt is often more constrained than the for sale mkt since approx. 75% of suburban mkts are owner occupied.
So SFH prices are high. But buying isn't necessarily a terrible decision given rental alternatives and the relative affordability due to low int. rates.
