Editor’s note: A house is the biggest purchase that many Americans will ever make…
But that’s a lot harder to do than normal right now.
We’re turning things over to Sean Michael Cummings today…
Sean is a member of our friend Brett Eversole’s True Wealth team at our corporate affiliate Stansberry Research. He follows the housing market closely in True Wealth Real Estate.
In the free DailyWealth e-letter on Monday, Sean shared the story of an “inactive meth lab” with a million-dollar price tag. He also detailed what it means for the U.S. housing industry.
Folks, it’s a wild read. And it gets to the heart of the current problem in this space…
Peter Karasev wasn’t just cooking drugs. He was building explosives, too…
The FBI arrested Karasev in March for allegedly planting bombs that targeted San Jose’s electrical grid last winter.
When the cops broke down his door, they found a massive stockpile of hazardous chemicals. The police had to call in federal resources to help deal with it all.
Karasev now faces several charges. They include two counts of damaging the property of an energy facility and one count of using fire or an explosive to commit a federal felony.
Karasev’s house is still too contaminated to live in. But it’s up for sale anyway.
The house went up for sale earlier this month at more than $1.5 million. Other homes in the same neighborhood are available for between $1.2 million and $1.6 million.
The listing agent describes the property as an “inactive meth lab.” The buyer will be responsible for cleaning it up. What’s more, its price recently increased by $125,000.
It’s absurd. But Karasev’s house is a useful snapshot of the American housing market…
In short, the supply imbalance of homes in the U.S. is as severe as ever today. And the current setup should support home prices well into the future…
If something traumatic happens on a property, a lot of people will choose to avoid it. The property becomes what real estate pros call “stigmatized.”
In other words, the property’s bad reputation follows it into the market.
Stigmatized properties are notoriously hard to sell. After all, not many folks want to live in inactive meth labs. Nor do they want to live where some sort of violent crime happened.
But that may not be the case for much longer…
According to a recent Zillow survey, 35% of prospective buyers would even buy a haunted house if it were cheaper than the surrounding area. It’s getting harder to get a good price.
That’s because of the real problem in U.S. housing today – affordability.
According to the National Association of Realtors (“NAR”), homes in the U.S. have never been less affordable. We can see that using NAR’s Housing Affordability Index…
Every month, NAR tracks “how much house” a median U.S. income earner can buy.
When the index is at 100, it means a typical household salary can cover the payments for one home. When it’s at 200, the typical salary can pay for two homes, and so on.
NAR’s Housing Affordability Index is at just 91.7 today. That’s the lowest level since the index began in the late 1980s. Take a look…
Today, a median salary isn’t enough to cover the cost of a home payment. You might assume that buyers would avoid such a brutal market. But folks are undeterred…
Last month, new home sales soared more than 12% to a 19-month high. And despite all-time lows in affordability, homes are selling about 34% faster than this time last year.
In other words, homebuyers are holding their noses and buying whatever property they can. It doesn’t matter if it’s stigmatized – like an inactive meth lab, for example.
The reason is simple…
We’re suffering from a drastic undersupply of homes in America.
The U.S. needs 2 million to 6 million more housing units to meet current demand. That kind of shortfall won’t end without significant effort and investment in new homebuilding.
Until the gap closes, we can expect to see more absurdities like Karasev’s inactive meth lab.
Good investing,
Sean Michael Cummings
