Pent Up Demand Continues to Build

The pendulum has swung on home sales. From a near all-time high in 2021 to a near 30-year low today. High interest rates, high home prices, wages not keeping up with inflation, and inadequate new supply are having a significant impact. It doesn't seem like there are many tailwinds for home buyers at the moment. Just as low prices cure low prices, high prices cure high prices. The pendulum will eventually swing back the other way, but no one knows how long it will take or how significant the swing will be.

Source: Mortgagenewsdaily.com

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We invest in self storage, mostly ground-up development. Markets with new home and/or apartment construction are good for self storage. The Self Storage Association Demand Study concludes that 11% of households use storage. So, for example, if a subdivision is built with 1,000 homes, that creates a demand for 110 storage units.

Studies show that about ⅓ of users that rent self storage are moving residences.
Home sales peaked in October 2021 at 6,850,000 homes sold, the highest number since 2005. Looking at a trailing 12-month average, home sales are down 34% from 2021. When home sales drop there are a lot of businesses that suffer, residential brokerages, shipping and moving companies, mortgage brokerages and self storage.

Running out the math:

• 90% of self storage renters are households
• 33% of households rent self storage due to a residential move
• 34% decrease in the number of homes sold from 2021*

There are 10% less storage customers today than in 2021. Thats 10% of the whole universe of self storage renters. That explains why the largest REITs, Extra Space Storage, and Public Storage, just posted negative year-over-year revenue growth.

That's the bad news. The good news and the reality is that the pendulum always swings back. Everyone we have spoken to believes that the lower home sales have created pent-up demand to be exercised in the future. If you need or want a bigger, smaller, new house today, most people can wait until a purchase or sale is more fiscally feasible.

Bottom line, tracking home sales can give you a glimpse into the demand for self storage rentals.

*calculated on a trailing 12 months from September 2024

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