The Housing Market Has Changed... But Don't Expect a Crash By Sean Michael Cummings, analyst, True Wealth
"Ah Redfin," Glenn Kelman wrote in an all-staff e-mail two weeks ago, "I'm sorry to say that we're asking about 8% of our employees to leave..." The online real estate brokerage's CEO went on to announce a sweeping layoff. It was either that or cease to exist... Redfin (RDFN) stock is down more than 90% since February 2021. And last month, demand came in at 17% less than the brokerage expected. It's a brutal time in real estate. Last year's manic market has cooled in a matter of months. Mortgage rates have soared, crushing demand. It might feel like another housing crash is on the horizon. That's what we saw last time around... And it fueled the worst recession of our lifetimes. Today is different, though. And if you're betting on home prices plummeting soon, you may be stuck waiting. Let me explain...
| Recommended Links: |  $54 Million Secret Revealed A handwritten letter given to an analyst at Stansberry Research left us speechless. And for the first time ever, we're sharing all the details of this incredible true story with you. The best part is, a similar opportunity is on the table once again. And it doesn't require you to place huge bets (or take on a lot of risk) to see 50-bagger upside potential in as little as 12 to 24 months. Click here to get this expert's trading secret revealed. | |
|---|
|
Mortgage rates have nearly doubled this year alone. They're nearing a 14-year high. And the Housing Affordability Index explains what that means for the average homebuyer. This index looks at three ingredients... wages, home prices, and interest rates. These factors determine if folks can afford a house payment or not. When this index is at 100, a typical American can afford a typical U.S. home. And when it's at 150, they can afford 150% of a home. The index was more than 150 in the strong boom we saw last year. Today, it's at about 109. That's the lowest reading since 2008. In other words, we're in a historically tough time to afford a home. And that environment is hurting demand. New builds are slowing down as a result. The U.S. Census Bureau records the total number of groundbreakings for new homes. As you can see, new housing starts fell more than 14% last month... May's shortfall undershot expert projections by about 8%. So affordability is low, and new builds are falling. This may feel like bad news for the housing market. But it doesn't mean home prices will crater... In fact, the median existing home price reached $407,600 in May – a record high. That's because falling home construction is actually a tailwind for real estate assets. Take last month's dip in housing starts. It's part of a bigger story: The U.S. just doesn't have enough housing. The number of homes for sale over the last 20 years bears that out... U.S. housing is near record scarcity. The National Association of Realtors put numbers to the shortfall last year. It wrote that we need between 5.5 million and 6.8 million units to close the gap. This shortage will take more than a few months of falling demand to go away. It's a multiyear problem. And it's a backstop to real estate prices. Instead of a crash, what we may see instead is a dip in how fast home prices are rising... Home prices soared 20.6% in the year ending this March. And they gained 13.2% the year before that. It has been a furious two-year bull run... But it's also completely unsustainable. Home prices don't usually grow by double digits. Before 2020, home prices rose less than 4% per year. And a reversion to the typical rate is much likelier than an all-out nosedive. Of course, something unforeseeable could change the picture. But if you're waiting for a crash to buy a house, there's a good chance you'll be waiting forever... And all the while, home prices will tick upward. The future may hold surging rates and cooling demand. But until the inventory gap closes, a crash is unlikely. Good investing, Sean Michael Cummings Further Reading "The smart bet is that this boom will continue," Brett Eversole writes. With mortgage rates elevated right now, homebuyers are struggling to find affordable options. But that doesn't mean the housing market is in danger of crashing... Learn more here: Homebuyers Can't Catch a Break... But That Won't Doom Real Estate. "The craziness is likely just getting started," Vic Lederman writes. Folks were piling into real estate before mortgage rates recently soared. But even though demand is cooling, the housing sector has plenty of room to run higher once the trend reverses... Read more here: A New Housing Bubble Is Underway. |
INSIDE TODAY'S
DailyWealth Premium People need this company's goods as much as housing... Real estate demand is cooling as mortgage rates remain high. But demand for this company is as durable as it gets... Click here to get immediate access. Market Notes HIGHS AND LOWS NEW HIGHS OF NOTE LAST WEEK Grocery Outlet (GO)... discount grocer NEW LOWS OF NOTE LAST WEEK Meta Platforms (META)... social media giant
Disney (DIS)... entertainment giant
General Electric (GE)... manufacturing giant
Dow (DOW)... chemical producers
ABB (ABB)... automation
Altria (MO)... cigarettes and alternatives
Bath & Body Works (BBWI)... personal care products
The Gap (GPS)... apparel
United Rentals (URI)... equipment rentals
Martin Marietta Materials (MLM)... building materials
Hilton Worldwide (HLT)... hotels
| 
