What might Toilet paper and Computer chips have in common? In 2020 shortages of toilet paper were driven by excessive (often crazy) demand. The same is true for computer chips in 2021. These two essentials in daily life that impact almost every human on earth showcase how manufacturers of everything have a tough time balancing the challenges of demand and supply.
All demand estimates are calculated guesses. Anyone starting 2020 would never have been able to imagine the rush on toilet paper. Most might have assumed a more gradual recovery and demand for computer chips in late 2020/21. And even if both had assumed these accelerated demands, would they have been able to ramp up production quickly enough? Would that investment makes sense knowing extreme demands usually subside? Is there a real incentive to produce more when you can sell less for larger profits?
How does all the above relate to real estate you might ask? Developers stung by the spectacular recession in 2007-9 opted to build fewer, more expensive homes in the 2010's knowing a wealthier audience usually had better credit and access to capital and probably had a higher likelihood of keeping or finding a well-paying job.......and the profits to build a more expensive home are usually much higher, for almost the same amount of work, time and aggravation.
The forces of economics are what they are and often getting things back into balance takes time, the shock of shortages, or lots of noise/red flags/etc. While we decry rising costs of so much product right now - mostly fueled by excess demand and under-capacity to produce - lets not ignore how real estate prices have been soaring for the exact same reasons. Maybe the bigger message is that when MORE people have money - instead of the concentration of wealth being at an extreme - demand and economic growth can SOAR.....and benefit both the very wealthy and those not as wealthy. Playing catch-up can be messy!