We Still Have Plenty of Upside Potential in Housing

“U.S. New Home Sales Soar to Highest Level in a Decade,” USA Today reported last week.

“New Homes Sales Growth Surges to 25-Year High,” the Wall Street Journal said.

So which is it? Are new-home sales the highest they’ve been in a decade… or in 25 years?

It turns out, the answer is BOTH…

The number of new homes sold last month reached 667,000 – the highest level since October 2007, a decade ago, during the last housing boom.

Looked at another way, though, new-home sales jumped by 18.9% – the highest monthly sales growth in 25 years.

Why did so many new homes sell last month? The hurricanes likely played a part.

But to me, the big factor in the housing market is the low supply of existing homes for sale.

It’s Economics 101 – when you have no supply and a ton of demand, prices go higher.

Specifically, housing supply is measured in months – that is, how long it will take for the existing inventory of houses to sell at the existing rate of sales. Right now, we’re sitting at 4.2 months of supply.

It is rarely lower than this… In fact, over the last 20 years, it was significantly lower only once – in early 2005. That was during the final years of the last great housing boom in the U.S… And house prices REALLY soared after that.

I expect the low supply today will create a similar effect – dramatically higher home prices.

The average sale price of new homes hit an all-time record last month, at $385,200. The median price for new homes was $319,700.

Keep in mind, new homes are only a fraction of the housing market. And the average home price is always higher than the median home price… For comparison, the median price of existing homes sold last month was $246,800.

But with scarce supply, that means we have plenty of upside ahead.

Higher house prices have been part of my big theme for the last eight years… Since then, I have said:

Interest rates will stay lower than you can imagine, for longer than you can imagine… And that will push asset prices, like stocks and real estate, higher than you can imagine.

The “Melt Up” is arriving in stocks, driving stock prices to new heights as the bull market enters its final phase. And now, the boom time is arriving in the housing market, too…

I believe we still have plenty of upside potential ahead… You haven’t missed it yet in housing.

Good investing,

Steve

Source: Daily Wealth