In 2011, I personally “backed up the truck” to buy Florida real estate.
To this day, Florida real estate (not including my home) makes up the largest percentage of my investable net worth.
I have been optimistic on housing ever since. So you might be surprised to hear that I am not always bullish on U.S. real estate…
I raised the alarm on the housing market in 2005. We were in a dangerous bubble, and I told readers that it couldn’t last.
When the environment in real estate turns dangerous again, I’ll be happy to sound the alarm. But let me be clear…
That’s not what’s happening today.
Part of the reason is what I explained in yesterday’s DailyWealth essay. Thanks to low interest rates, the relative value of housing is incredibly attractive.
There’s more to it though, as I’ll explain today. And there’s a simple way you can profit from what’s going on.
Let me explain…
The reason I’m still bullish on housing is simple… supply and demand.
In a bad housing market, supply overwhelms demand. Prices fall when the housing market is overflowing with houses.
We aren’t at saturation levels right now. In fact, we are far from it.
One way to see this is through the monthly home supply in the U.S. It measures how many months it would take to get rid of the current housing supply at current sales rates.
In January, the monthly U.S. home supply was five months. Today, it hovers around six. Take a look…
Supply has jumped up a little. But it’s nowhere near saturation levels. We’ve seen monthly home supply jump to double digits in the past.
At six months, the current month’s supply is hovering right around its long-term average.
This is a positive factor for companies that build homes. Supply remains in check. And we’re not going to see a flood of new supply anytime soon…
That’s because housing starts are down dramatically since the coronavirus outbreak began. They’re down 45% since the January peak… And they have now fallen to recession levels. So we are about to have a severe shortage of new homes.
Of course, coronavirus is also going to slow demand. But with supply down so much, homebuilders are in a better spot than you might think.
It’s true that when the virus hit the U.S., these stocks crashed with the broader market. Homebuilders fell 51% peak to trough from February to March.
That’s right – the sector at the heart of a housing boom lost half of its value in roughly a month.
For folks who owned homebuilders, it was a painful loss. But the rally in recent weeks has been just as powerful… The sector has soared roughly 80% from its recent lows.
Combine that with the fantastic relative value in housing… as well as the supply and demand positives… and it makes one thing clear.
Housing is a smart bet today. And owning the homebuilders – the companies that drive the housing market – is a smart bet, too.
Good investing,
— Steve
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Source: Daily Wealth