The 80% Housing Shortage Mistake

The media and investment banks have been telling you this narrative that we have this massive housing shortage. But I'm going to read to you some of these shortages that they put out there a number of units. And I want you to be understand that they've been pushing this narrative for years and years. And now they're changing their story pretty much overnight now that the market's completely flipped.

So look at this. The National Association of Realtors in 2020 said we had 5.5 million. There's even one estimate that shows that they have 6.8 8 million units that are under supplied to the market, underbuilding relative to model demand is was the way that they calculated it. Freddy Mack 3.8 million shortage.

Zillow even said we had a 4.5 million shortage. Uh NLHC, which is the rental market, they're saying there's 7.1 million rentals. Well, how can this be when we start to see prices decline? We're starting to see rents decline across the board.

How did these people who are experts in housing get it completely wrong just within a short period of time? Let's dig into why that is and why you need to follow a channel like this one that's going to tell you what is actually happening and why it happened versus people in ivory towers towers that literally are just paid to create product and push media so they can sell more houses. It's a completely different dynamic. So look, here's the shortage narrative revised.

JP Morgan's housing outlook that just came out recently said that indeed the size of housing shortage in the US has been overemphasized with JP Morgan Global's research putting the figure at around 1.2 million homes. So from the highest level to the lowest level of ranges of how much of a shortage we have, we're talking nearly 80% of a discrepancy, which is not like that's very very relevant. Significantly below other estimates. Looking back over the past 30 years, new household formations in household completions net out to nearly zero.

So, the way that we're going to grow is through international immigration because we don't have the formations for the completions. In addition, housing supply has climbed in recent months. Overbuilding is a sure path to home price declines and builders have been navigating an increasing supply of new homes. This is extremely relevant because we are seeing tons of new homes stack.

So much so that we're basically at great financial crisis levels on the new construction inventory. So the narrative is breaking down and it's getting worse every single month. And it puts to shame all of these past studies that were based on estimates and assumptions and what it should have been when we're looking at reality on this channel and reality is showing us very different things. Now, we continue to see people have this narrative of, oh, listings aren't coming on the market, properties are coming off the market.

And I love Resi Club. They put out a ton of great data. And Lance Lambert is somebody I follow on X because he puts out good information. I saw him this put this out here.

Active inventory for sale in Jacksonville, Florida. My market is one of the softer US markets in the past three years, is no longer shooting up. It's actually now down 7.4% year-over-year for active housing inventory. While many of you reading this might think that this is a positive sign for the real estate market, it's actually not.

So, I had to reply to this because it's not quite what it seems. Again, there's an ivory tower view of how real estate is supposed to work. And then there's those of us on the ground that not only are tracking the data, but we have the actual reasons why it's changing versus just, hey, it's changing and things are getting better. Because this is actually a symptom of things getting worse, not better.

Agents on the ground do not see the market getting stronger. Here's what's really happening. On December 31st, when you have your listing agreement as a seller, you basically have most of your contracts expire on December 31st. That's just the way that the real estate agents write it in.

Now, so we have all of these listings expire at the beginning of the year. January 1st is called expired lead day where agents get on and just start calling all these thousands and thousands of expired listings that expired with their previous agent trying to get them to list with them for new business. Most of these properties, we saw 22% of our listings here in Jacksonville come off of the market just because of this one nuance that is not being discussed here in the data. And by the way, you can see this in every single January.

It goes down, it goes down, it goes down, it goes down, right? Every single one because of this phenomenon and it's not talked about. So, this is nothing unusual of experiencing a drop. And you might say, "Well, John, this one's a little bit more of a drop." Well, we've seen major drops before.

That was because of demand. We're not seeing the drops right now uh because demand picked up and active in getting bought up. We're seeing it because close and pending sales are down a lot, but we're also seeing this rage quitting of sellers be very high. What is rage quitting?

Is when a seller lists their house, they don't get the price that they want from the market. They blame their real estate agent because they're so frustrated they can't get the price that they want. They don't think about the market. They don't realize what buyers are going through.

They don't do the math of what would the new mortgage rate payment be today versus what the same person could rent the property for. Because a lot of time, these buyers have options. They can go rent the same exact property for $1,000 less than if they went to buy it at today's price. Why would they buy in that type of situation?

So sellers when they don't get the price they want, they get really upset. They call their agent. They cancel. They rage quit is what I reference it to.

And they yank their property off the market, waiting for a busy season, which is starting up in just a few weeks here to then relist their house hoping that they can get more money for it even though it didn't sell the first time after sitting on the market for four or five months. And I can tell you that is the explanation that we're seeing on this chart. And I will tell you also builders are now not listing all of their inventory on the market. So it's not showing up in MLS.

Okay? So a lot of this information, a lot of this off of the market just waiting to come after the next product sells. And that's why we're not going to this is why we're going to see a reversal in this trend line going into busy season. Most of the time you'll start seeing the the pick up in number of new listings in about 3 to four weeks from now.

So keep keep this in mind. It's not exactly what it seems on media. It's not exactly what it seems on mainstream media. And the shortage story is no longer valid.

You can see here we went from 2,000 active listings here in Jacksonville nearly up to 10,000. You know, we're at 1.12,000 active listings. This chart might be a little bit old or not include [clears throat] all the information. Uh we also make sure that if you include condos and town houses, which are frankly just stacking up across the board because those are much more challenging to sell in this type of market environment.

But this is very real and I really want you to understand that this in this narrative that new listings aren't coming on and all these listings came off the market is not true. We just have a pent up supply of listings that'll be coming onto the market in a few weeks here and you're going to start seeing the the narrative change again. Right? They they make up this narrative to try to fit the story that they want to tell you because that is how they get paid.

They get paid through title companies, mortgage companies, real estate companies to put out these pump pieces for housing to keep the sentiment up because sentiment is what drives the real estate market. But this just shows you sentiment that look at this. This is mortgage applications index from 1990 to 2025. We are already below the great financial crisis level of mortgage applications.

Okay? So it's already worse than 2008. We have extremely weak demand. It's dropped more than 40%, 42% and renter demand is also dropping because people are doubling up.

People are living with their parents. So aggregate demand both on the the sales side and on the rental side are dropping and the calculus changes completely when the rental rates drop. Now the investors are going to buy for less. And in areas like Jacksonville, the Sunb Belt, where 25 30% of the purchases are investors, and you see that calculus change, they're now going to have to buy the house, rents dropped 20%, they're going to have to buy the house probably 20% lower.

There's a formula there that they use, and each house is individual based on its taxes, insurance, all of that stuff, right? So, I'm not going to share with you the exact formula because it's not going to work for every property, but it does decline the value of the house and give that back stop from when an investor would step in when you start to see those rental rates make sense. Logically, this makes sense. If we have a 68% increase within a few years, then we're going to have some sort of mean reversion.

It's going to drop 20, 30, 40% back down, and then we get back to reality. Because the truth is, we did not have a housing shortage. What we had was a pull forward of demand, which you can see right here with these mortgage application. We had this tons of demand that popped up and moved that demand.

Basically had five years of sales in two years. And we had and that created this idea that we had this housing shortage as well because there was net migration to specific areas especially the sunb belt. Well, when that happens, we had just a demand shock. We didn't have a housing shortage.

Those are very different things. How do we know we didn't have a housing shortage? Because in 2019, we did not have a housing shortage. Okay?

So, it was simply we just had this massive demand pull forward. It happened all at the same time. The builders reacted. Now we're overbuilt and now the migration has moved back down to more normalized levels.

We can see this through the record low in contract signings to close in 2025. This comes from Reventure Consulting, which is great, but the inventory keeps stacking because now we have less applications. Less people are going under contract. And then of course that's translating into lower number of existing home sales, which are the lowest level since the great financial crisis as well.

So we're already starting to see this. And once transaction volume slows, the next step after that is inventory stacks and prices come down. We see this across the board. And once those prices come down, they get sticky on the way down just like they get sticky on the way up.

It takes time for people to change directions and for people to change sentiment. And this is the narrative that we had, right? We had all of these people that were leaving California. We had people leaving New York.

We had people leaving the Northeast to come to Florida to come to Texas. Well, this data that people are still putting out here, which by the way is great, right? Is great for Florida because we have all these wealthy people moving here. They have a multiplier effect in the economy.

They spend lots of money. They help the healthcare industry obviously because a lot of these folks are older. But this is old data. This has completely reversed over the last few years.

I know people are keep referencing, oh, it's like all these people are still relocating. They're not. Net migration is almost near zero to the state of Florida at this point. And the wealth has really stopped moving.

Thankfully, we're still seeing some large companies relocate here uh for better business practices and it's just more a free state to operate as a business owner, which is great. We're seeing some benefit there, but it's nothing compared to what it was previously. And that is why the builders are freaking out. But what's really driving the market right now is this affordability crisis.

Because if you don't have people relocating to the area and the locals are completely priced out from a income perspective, then who is the next buyer of that piece of real estate? And that is the question that we continue to ask. A lot of people say, well, it's going to be young people with down payments from their from their parents. Well, I can tell you 80% of people don't have parents to just give them money to put as a down payment to buy an overpriced asset at the peak of the market.

Okay? So, it's not as common as you would think. Now, this is house payments as a percentage of median income. I like this chart.

You know, I always ask, what's the percentage where things start to reverse? It looks like it's around 40%. Obviously, in 1981, it got all the way up to 47.5% which is crazy with 18% rates. Now, um we're talking about around 39.4%.

Another chart that just shows us worse than the great financial crisis levels. And obviously, I expect this chart to correct. When you see the correction happen, it doesn't just correct, it overcorrects each time to the downside. This is why we see this big spike upwards and then we see this big spike downwards.

So, I know a lot of people say, "Okay, well, real estate is a really steady asset class." Not in the Sunb Belt. The Sunb Belt is one of the largest areas where there's the most number of homes that transact and move through, the volume that moves through. It is a speculative market that moves up and down across the board. So affordability is the number one factor that is driving the market right now.

And it's not interest rates that are going to bring buyers back to the market. They are looking at price. They want the price lower. They also of course would love the interest rate lower, but they need to see the price make sense for them and their payment to make sense for them.

And I think a lot of that will come down to they would prefer just to feel like they're getting in at a good price and they're not past the peak and they're holding off. Of course, the US home to income ratio is also near record high. So, we can cut this a bunch of different ways from the value perspective, but we're near that 2006 2007 time frame. And for us to get back to where the median is, not just to go all the way back and and make the numbers make sense again, just to get to the median, it's we would see a 26.6% drop.

So, basically, the math broke for a lot of people. The relocations to the Sunb Belt areas are no longer happening because it's not affordable anymore. So people are now moving to the Midwest and we have a chart to show you why that is. And basically young people are trying to find where can I get ahead and it's no longer Florida because the prices uh this this home value to income ratio especially in Florida it looks pretty bad.

Now look at this. This is the qualifying income based on sales price of existing family homes. So in the United States to to buy a house with 5% down you need to make $117,000. Well the median household income is $86,000.

And this is just another way to view it. There's a gap there because prices went up way faster than wages went up and that is causing, you know, a big disparity in what people can afford. And of course, this is going to be very different across the board. But you can see in the Midwest, you can still afford to buy a house in today's market with 5 10 20% down and the numbers actually make sense if they're getting that $86,000 uh median household income.

So people are moving there. If they can get the job, if they can get the wages, then it makes sense. But you can see that it's very different for each individual market and you need to overlay the household income for each area for this graph to really make sense for you. And because we have all this unaffordability going on, the properties just continue to stack.

This is the number of unsold completed homes for sale right now. The highest level completed of unsold homes since July 2009. We see this number continuing to move up, but it's going to start stalling because we just have all these permits of approved lots to build. And people, the builders are just saying, you know, I'm not going to build this anymore.

So, they're just stopped building completely. There's people in Florida that have just completely stopped as much as they can the construction of their new communities and they're just waiting for demand to come back. Now, for those people who already bought in that community, if they have to sell and move, they're already underwater in some cases more than $100,000 from the time that they bought the house. If they bought between 2022, 23, 24, or even some cases 25 with a low amount of down payment like FHA and VA loans, which in some cases are up to 60% of the properties in these new construction communities are VA or FHA type of firsttime home buyer program.

So, this is this is something that we're watching very closely. The this is why we're starting to see a lot of new homes sell and existing homes stall because these builders are offering massive incentives for the home buyers. They're buying down their interest rates all the way down to the three, sometimes in the fours, and they're making the payment make sense to them versus renting, but then they're getting stuck with these insanely high prices. And then when they go to sell, if they need to sell in the next two or three years, they're stuck on that property and they can't move out.

And that's why we're starting to see in Florida a bunch of short sales pop up. And inventory is moving across the board, not just in new construction. January 2026, inventory is year-over-year. Um, this pent-up supply from the rage quitting is coming back on.

This is the inventory change from Altos. They say year-over-year we're up 9.6. Realtor.com says 10% and N says 3.4%. Obviously, N is the most optimistic force out there when you look at a piece of data, so be careful with them.

I do think Zillow and Realtor.com are being a little bit more honest with what's going on in the market. Uh and then Alto's research I think is close. So I I think we're seeing inventory change across the board on a higher and higher level. Month overmonth you see that inventory change again because we had all those expired listings come off of the market.

And that explains what you're seeing there. But this is what we're seeing now. The 10 most affordable states for single family home buyers. You can see what's going on.

The Midwest West in particular has attracted significant buyer demand and investment as home shop shoppers flock to the nation's most affordable housing markets. This comes from realtor.com. That is what people are looking for. They're looking for affordability.

And I think this demand will move to these other affordable areas and then the other areas that had this massive runup, they will have no choice but to be competitive and lower their prices across the board. We're already seeing it in many areas where prices and rents are already down 20% here in the sunb belt. This is a great chart that comes from Zillow's home value index and you can see the seasonality of the market. So this is what happened in December.

In November, December, people take their house off the market for the holidays and then they relist it through March through July, which is what people generally consider busy season. You can see all the blue here is the price gains. And people expect, hey, if I'm going to take it off the market, I'm going to relist during this time period and prices will go up. Well, we're going into a period, there's periods in the past where even during busy season, prices continued to move down.

I'm not sure if we're going to see that this year, but it's definitely going to be tempered and I can see definitely that we're in for a negative year this year, uh, most likely based on the data that we're seeing. Of course, that's going to depend on employment. It's going to depend on what the Fed decides to do with interest rates uh later this year because it's a big year with a new Fed chair coming in that needs to be approved by the Senate. So, we'll have to watch closely here.

But, I'm not expecting this to be a really positive year for housing prices nationally. Obviously, in the Sunb Belt, we're going to continue to see prices come down and then distress start to show up over the next few months here. And it's already starting to show up across the board. 15 of the largest metro areas in the housing market have more inventory than in the preandemic 2019 levels.

You can see Texas, Tennessee, Colorado, Florida. You can see the similar states that are that are in the sunb belt that are getting impacted the most with more and more inventory. Here's the areas that have less and less inventory. Right?

These are the areas in the northeast with the nimi rules makes it very hard to build, etc. Uh, however, it's becoming so unaffordable here. They have their own issues where people have this old aging housing stock. You know, people are not able to live.

So, they're moving to these southern affordable areas. They have net migration that's moving out of these areas. And we're seeing up from just nine of 50 markets in January 2025. So, this is spreading.

Okay. So, it's starting usually starts at the coast and then moves inland. And I do expect this to impact the Northeast over the next few years where inventory will come back on the market as these baby boomers start to pass away as the young people start to move out because the prices are just too high and we will find this new median ground over the next couple of years here. This does not happen overnight.

It can take even up to a decade for the market to really adjust to what the new market environment is. Here's the active listing count. This is from realtor.com. It just shows you a good chart versus the other markets of, hey, this is where we're starting off in January 2026 versus the prior years, up 10% year-over-year for the active listing count.

Uh, now we're also back from a national standpoint to housing inventory to nearly 2019 levels. You can see here's 2019 uh the number of properties we have listed. And now we're moving step by step, right? It doesn't happen overnight.

Look at this. This is 2021 all the way to 2025. You can see one, two, three, four, five years that it's taking for us to get back to this level of inventory. And I expect this to to continue to step upward moving forward, putting pressure downward on prices.

Now, the pent-up inventory is way higher in the Sunb Belt. You can see the inventory compared to the prepandemic levels is 29% higher in Florida, 32% higher in Texas, and and these other states that are widely impacted. These are the speculative markets that went crazy with the new construction and now we're just overbuilt. Uh and and this these areas actually have a lot more supply than this chart suggests because the builders are holding their inventory, their permits.

They've just stopped what they're doing basically. And there's this tons of supply that's just ready to go once the demand comes back. The only reality is that the demand will come back when the prices fall. So we're just going to start seeing prices fall, which we're already seeing.

This chart's great. Shows negative equity rate by uh by the specific market. You can see in Florida, these are the areas that went up the most. They're going down the most.

These are the areas that went up the most. Now they're going down the most. And this is just how it is. We're going to start seeing negative equity rate grow more and more across the board because these are the speculative markets.

This is where the investors moved into the mom and pops were a big player in that. We saw the builders come and move into these areas and overbuild. And that is this is basically a trend that we're going to start seeing moving forward. And I would pay attention to this over the next five years, especially if you're a buyer or seller.

You want to overlay how many people in in these areas are also in the boomer category because there's studies out there that show we're going to sadly lose 48 million baby boomers over the next decade. This is going to massively play out in some areas more than others based on the demographics. But I can tell you in Florida, if we don't have the net migration, we don't have the international immigration, it's going to be a very, very challenging market for people holding rentals long term, until the prices get back down to where it's affordable again and people start moving here. Florida's a great place to live.

It's got great weather. Uh we have a very friendly business environment, but at the end of the day, demographics is going to drive a lot of this. And the demographics and the net migration to Florida is really dependent on an affordability factor, which we're just not there yet. And of course, that's why we're starting to see certain these certain areas get hit first in terms of the metro seeing the steepest home price index declines.

It's huge in Florida. So, I'd love to hear from you. This shortage narrative is breaking down. I want to hear from you.

Do you see it breaking down in your area as well? If you're in the Northeast, you might say, "Look, we're not seeing that here at all, but I can tell you, do you have any concerns if you're in the Northeast and you're thinking about holding this real estate long term?" I'd love to hear your perspective. And then if you're a renter right now, why would you buy if you can rent that same exact property for 1,00 1,500 less per month? Tell us more about your thinking behind that.

What would be the strategy behind that? I'd love to hear from you. We're still seeing a ton of people out there buying every single day. Usually, they have long-term goals or planning on holding it for 20, 30 years, but the reality is people generally stay on their, you know, keep their property for 8 to 12 years.

In Florida, I actually believe it's a little bit less than that because there's people relocating in and out. So, I'd love to hear what you think. If you're a renter and you're thinking about buying, of course, if you need a real estate agent in your market across the United States, I can send you one of the best out there. Most agents suck.

About 80% of them live less live on less money than the poverty level of income for the amount of commission that they make. So, if you need a top agent, reach out to me. My contact information is below or send a send a comment over. And I'd love to hear where you're located and what you're seeing.

As always, thanks for watching. If you want to learn more about what we have going on from the data side, you can always subscribe to my Substack, Think Big Question Everything, and I talk about things there that I can't talk about here on YouTube. Thanks so much for watching. See you later.