WARNING: Building Permits Crash 27% - Rent Surge Coming?

Housing market shifts are reshaping America's real estate landscape in ways that affect everyone from renters to hopeful homebuyers. Our deep dive reveals a startling reversal: permits for new apartment construction have not only cooled from pandemic highs but actually fallen below pre-COVID levels. This 27% drop from peak building activity signals serious trouble ahead for rental markets nationwide.

Why the sudden halt? Developers face a brutal equation: flattening rent growth combined with skyrocketing borrowing costs. Though many areas currently experience a temporary glut of newly completed units (started during the boom), the sharp decline in new projects means tomorrow's renters will likely face tighter markets and potentially higher costs once this current inventory is absorbed.

The ripple effects extend well beyond rentals. With fewer new homes being built, buyers increasingly turn to older properties, pushing the median age of homes sold to an unprecedented 36 years - nearly a decade older than just ten years ago. Simultaneously, younger buyers are being squeezed out of the market entirely. First-time homebuyers now represent only 24% of purchases (down from 50% in 2010), with their median age climbing to 38 years. Even more striking, the overall median homebuyer is now 56 years old - a 44% increase from just two decades ago.

Regional differences add another layer of complexity. While established areas like the Rust Belt naturally feature older housing stock, even former boom towns are seeing dramatic shifts. Nearly two-thirds of major metros have cut back sharply on apartment permitting, with some slashing new permits by over 60%. The housing landscape varies dramatically depending on local factors - history, economy, and available land.

Whether you're currently renting or hoping to buy, understanding these fundamental shifts can help you navigate an increasingly challenging market. What does the age and availability of housing in your specific region tell you about its future trajectory? The answer could significantly impact your housing decisions in the years ahead.

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Episode Transcript

Speaker 1 (00:00):
Welcome back to the Deep Dive.
Today we're really digging intosome shifts in the US housing
market.

Speaker 2 (00:06):
Yeah, some interesting data out there.
We've looked at analysescovering well everything from
new construction or maybe thelack of it.

Speaker 1 (00:12):
Right, exactly.
And also who's actually buyinghomes these days?

Speaker 2 (00:16):
And our mission, as always, is to sort of cut
through the source material andpull out the key nuggets for you
.

Speaker 1 (00:29):
What's happening.
Why should you care whetheryou're you know renting or
hoping to buy soon?

Speaker 2 (00:31):
Definitely, and the first thing that jumps out is
pretty big Permits for newmultifamily apartments.
They've actually dropped,dropped significantly below
pre-pandemic levels, which isquite something.
Below pre-COVID Wow yeah, thedata shows developers permitted
about 12.4 multifamily units per10,000 people nationally in the
last year.
Now that's down 27 percent fromthe peak, which was quite a
frenzy.

Speaker 1 (00:51):
I remember that boom.

Speaker 2 (00:52):
Oh yeah.
But the key thing, it's now 5.5percent lower than before the
pandemic even started.
So it's not just cooling off,it's well, it's reversed below
that baseline.

Speaker 1 (01:03):
Yeah, ok, hold on.
We had that huge constructionsurge right, especially Sunbelt
remote work moves.
What slammed the brakes on sohard for developers?

Speaker 2 (01:13):
Well, a couple of big things shifted, and fast.
First, rent growth.
After soaring it's reallyflattened out, even gone down in
some spots.

Speaker 1 (01:20):
Okay.

Speaker 2 (01:21):
And, at the same time , borrowing costs Through the
roof.
Higher interest rates makefinancing these huge projects
way more expensive.

Speaker 1 (01:30):
So potential income is flat, costs are way up.

Speaker 2 (01:33):
Exactly.
The math just doesn't pencilout anymore for a lot of these
potential new builds.

Speaker 1 (01:38):
There is a quote, I think, from a redfin economist
in the source material.

Speaker 2 (01:42):
Yeah, basically saying new apartments are
renting at the slowest pace onrecord, slowest ever.
That's what he said and pointedright at those high interest
rates forcing builders to quotepump the brakes.

Speaker 1 (01:52):
Okay, so brakes are on now, but here's where it gets
.
Maybe a bit concerning forrenters.

Speaker 2 (01:56):
Potentially yes.

Speaker 1 (01:57):
Yeah.

Speaker 2 (01:58):
The analysis suggests this slowdown in starting new
projects now.
Well, it's likely to create asqueeze down the line.

Speaker 1 (02:05):
A squeeze, meaning fewer available rentals.

Speaker 2 (02:08):
Fewer available units hitting the market maybe a year
or so from now, which couldironically push rents back up
again.

Speaker 1 (02:14):
Wait, okay, so help me square this.
They're renting slowly now, butyou're saying rents might go up
later because permits dropped.
Today Seems like a lag.

Speaker 2 (02:23):
It is.
It's all about the supplypipeline.

Speaker 1 (02:25):
Yeah.

Speaker 2 (02:25):
See, we had a ton of completions, record completions
actually in early 2024.

Speaker 1 (02:31):
Ah, from projects started during the boom.

Speaker 2 (02:33):
Exactly, yeah.
So that's why things arerenting slowly.
Right now there's thistemporary flood of just finished
units, but because fewer newprojects are getting started.

Speaker 1 (02:41):
The future supply shrinks.

Speaker 2 (02:43):
Precisely Once this current batch gets absorbed.
The lack of new stuff comingonline behind it is what
tightens the market.
That's the prediction anyway.

Speaker 1 (02:52):
Got it Okay.
The pipeline's drying up andthis slowdown it's not just
apartments, right, it seems likeit's having a ripple effect on
the whole market.
Older homes who's buying?

Speaker 2 (03:02):
Absolutely.
It affects the existing housingstock, like the whole market.
Older homes who's buying?
Absolutely it affects theexisting housing stock.
With fewer new builds, buyersare looking more at older homes.
Makes sense and the data backsit up.
The median age of a home soldin the US this year hit a record
36 years old 36?

Speaker 1 (03:17):
Wow.

Speaker 2 (03:17):
Think about it.
That's nearly 10 years olderthan the median just a decade
ago.
It says a lot about what'sactually available out there.

Speaker 1 (03:24):
And this ties into who can actually afford to buy,
doesn't it the buyer?
Demographics are changing.

Speaker 2 (03:28):
Dramatically Younger first-time buyers.
They're a much smaller slice ofthe pie now.

Speaker 1 (03:33):
How small?

Speaker 2 (03:33):
Down to just 24% of purchases.
Compare that to 50% back in2010.
It's a huge drop 50% down to 24.
Wow.
And the median age for afirst-time buyer now 38.

Speaker 1 (03:44):
Again, highest ever recorded 38 for your first home.
Yes, yeah.

Speaker 2 (03:48):
And if you look at the average buyer overall,
including people moving up, themedian age is now 56.

Speaker 1 (03:53):
56.

Speaker 2 (03:54):
Up 44% from just 20 years ago.
It's a substantial shift.

Speaker 1 (03:57):
So connecting the dots.
Yes, scarce new homes, highprices, high rates.

Speaker 2 (04:02):
Yeah.

Speaker 1 (04:03):
It really looks like it's pushing younger people out,
or at least towards older homes, leaving the field more to well
older, maybe wealthier, buyers.

Speaker 2 (04:09):
It seems that way, though the sources do mention
that even the price gap betweennew and older homes is narrowing
a bit, because demands forthose older ones is up.

Speaker 1 (04:18):
Right.

Speaker 2 (04:19):
But what's really fascinating is how this isn't
uniform.
The regional differences arestark.

Speaker 1 (04:25):
Ah, yeah.
So where are we seeing theseolder homes concentrated?

Speaker 2 (04:29):
Mostly in established areas.
You know Rust Belt, Northeast,I think, Buffalo, Pittsburgh,
places with inherently olderhousing.

Speaker 1 (04:37):
And the newer homes Still the Sun Belt boom towns.

Speaker 2 (04:40):
Generally, yeah, Places like Austin, Raleigh that
saw huge recent growth, Thougheven there things are changing.

Speaker 1 (04:46):
Like Austin, I saw they're still permitting a lot
of apartments per capita,despite the national trend.

Speaker 2 (04:51):
Austin's still high, yes, but nearly two-thirds about
63% of major metros haveactually cut back on apartment
permitting since the boomreversed.

Speaker 1 (04:58):
Cut back hard.

Speaker 2 (04:59):
Some places drastically Colorado Springs,
Boise City slashed permits byover 60%.
But then you see countertrends.
Oh, Oklahoma City, evenPittsburgh, have seen permits
increase sharply recently.
Mind you, they're oftenstarting from a much lower base
level than the Austins of theworld.

Speaker 1 (05:17):
So it really depends on local factors history,
economy, land.

Speaker 2 (05:21):
Absolutely Creates very different housing
situations across the country.

Speaker 1 (05:24):
Okay, so let's bring it back.
What's the key takeaway for you?
Listening right now?

Speaker 2 (05:28):
Well, if you're renting, that big drop in new
permits we started with itstrongly suggests the pipeline
of new apartments is slowing waydown.

Speaker 1 (05:38):
Which could mean tighter supply, maybe higher
rents coming.

Speaker 2 (05:42):
That's the potential risk down the road.
Yeah, Even if rent growth issoft right now in some areas.

Speaker 1 (05:46):
And if you're trying to buy.

Speaker 2 (05:47):
Be prepared for a market where the average home
for sale is well older than it'sever been.

Speaker 1 (05:53):
And you might be competing with buyers who are,
on average, quite a bit olderthan buyers were, say, 20 years
ago.

Speaker 2 (06:00):
That seems to be the trend.

Speaker 1 (06:01):
Okay, so a final thought for everyone listening
to, maybe Mull over.

Speaker 2 (06:05):
Yeah, Given these really sharp regional
differences we talked aboutbuilding activity, the age of
homes varying so much from, say,Pittsburgh to Austin.

Speaker 1 (06:13):
How might these national trends we've discussed
play out specifically where youlive?

Speaker 2 (06:18):
Right, what does the age of the housing stock in your
neighborhood, your city, tellyou about its dynamics, and what
might that mean for you,whether you're renting?