I was driving through downtown Little Rock recently, watching anxiously as tens of thousands of Arkansas Razorbacks fans filed into War Memorial Stadium in a sea of red for the season’s first football game. I had two tickets in hand and was anxious to get inside the gates.

But there was one little problem: no parking in sight. Too many vehicles and not nearly enough places to put them. Forced to keep searching, I passed a small apartment complex a mile or so past the stadium with a couple empty spots left. The advertised price: $60.

Onward, I drove. With a 20-minute walk ahead, I saw a good opportunity to teach my son the most basic laws of supply and demand. Let me tell you, 14-year-olds aren’t receptive to economics lessons, not when kickoff is fifteen minutes away.

We will revisit the conversation later — maybe in a couple years when he’s in the market for a used car.

Of course, there are supply/demand imbalances all around us. Just ask anybody who’s tried to buy a house recently.

A Nationwide Housing Shortage

Between new construction, remodeling projects, rents, and utility payments, it’s estimated that housing accounts for approximately 18% of GDP. Needless to say, a healthy housing market goes a long way towards ensuring economic tranquility. And as we learned during the 2007/2008 financial crash, the opposite is also true.

First, let’s take a look at some of the data.

As of last quarter, median national home prices remained at $416,000. While some of the froth has come off the red-hot market, prices are still quite elevated by most measures. Just three years ago (in the early days of the pandemic), median home prices stood at $329,000.

_{Source: Federal Reserve Bank of St. Louis}

That’s an increase of nearly $90,000 in about 36 months. And as we know, the price tag is only half of the picture.

After a dozen fed rate hikes, the days of cheap 3% mortgage loans are long gone. The average rate for a 30-year loan crossed the 6% threshold last year for the first time since the 2008 financial crisis. And it has ticked even higher since then. This chart below from the Fed gives you an idea, but according to the latest data from Bankrate, the national average for a fixed 30-year mortgage reached 7.59% last week.

_{Source: Federal Reserve Bank of St. Louis}

Mortgage rates haven’t been this expensive since 2000. So I’m only partly facetious in saying these are the most expensive borrowing costs this millennium. This is a huge (in some cases unmovable) obstacle standing in the way of many would-be buyers.

The monthly principal and interest due at 5.0% on a $400,000 mortgage would be $2,147. A one percentage point uptick to 6.0% raises the note to $2,398. At today’s 7.59%, buyers will send their lender a check for $2,822 monthly.

Between steeper prices and rising mortgages, homes that were once affordable for many families are now out of reach. And that’s without added property taxes, insurance, homeowners association (HOA) dues, and other miscellaneous expenses. I kept them out to keep the calculations simple. But real-life buyers certainly don’t have that luxury.

Sure, wages have risen as well in this robust labor market. Unfortunately, they haven’t kept pace. The typical house note now eats up 35% of the median household income, up from a historical average of 25%. According to Yahoo Money, payment-to-income ratios haven’t been this skewed in 38 years.

How To Profit From The Housing Shortage

The data may be new, but it’s the same story I’ve been telling for the past year or so.

All of these macro tailwinds favor multi-family rentals.

I continue to stand steadfastly behind that assessment. Landlords are benefiting from low vacancies, rising demand, and buoyant rental rates. If you’re looking to profit from this trend, here are a few names to consider.

We have a couple of favorites from this list over at High-Yield Investing. But other than weeding out low market caps and a few other tweaks, the the table above is just a simple screen for residential REITs (real estate investment trusts).

Still, if you’re an income-minded investor looking to profit from this mega-trend, it’s a good place to start.

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