It might sound crazy – even unbelievable – but the COVID-19 crisis has primed the housing market for a major boom.
It all has to do with supply and demand. These forces are the basics of economics. And even though it’s counterintuitive, those basics are pushing the market to a tipping point.
Today, we’ll take a closer look at both. As you’ll see, when you combine today’s economic conditions with the low mortgage rates we talked about yesterday, the housing market is ready to soar.
Let me explain…
Real estate company RE/MAX recently put out its national housing report for April.
It looks at 53 metropolitan areas in the U.S. to gauge what’s happening in the market at the time.
The survey revealed that homes were selling faster in April than this time last year. Homes lasted just 46 days on the market this April – seven fewer days than in April 2019.
Plus, this drop set a new low for the report’s 12-year history.
This tells us one thing… Demand for homes remains strong. That’s a positive sign for real estate prices. But demand alone isn’t enough to drive prices higher…
It’s just one side of the equation. We must also look at supply.
If we see an overflow of homes on the market, it could mean there aren’t enough buyers to keep up with the existing supply. And in turn, that could send housing prices falling.
But as it turns out, that’s not the case today…
The current housing supply remains near its historical average…
You can see what I mean by looking at the U.S. monthly home supply. It tells us how long it would take to get rid of all the homes in the country at the current sales rates. The lower the number of months, the less supply on the market at the time.
Today, that number sits around 6. That’s right around the historical average in the U.S. Take a look…
We aren’t anywhere near the record supply numbers that we saw after the 2008 real estate bust. And we’re nowhere near the excess supply that existed in 1974 and the early 1980s.
This is not the kind of oversupply that kills a housing boom. And with the strong demand we saw in March and April, this could create a tailwind for home prices going forward.
But there’s more. Housing supply isn’t just near its long-term average… It could get even tighter in the months ahead. That’s because companies that build homes have stopped doing just that.
In other words, U.S. housing starts have fallen off a cliff since January. Take a look…
Overall, U.S. housing starts are down 45% from their peak in January through April.
A lot of that has to do with lockdowns related to the COVID-19 outbreak. But it still means there’s little chance that the existing home supply will take off in the coming months. And it’s another factor that will help send real estate prices even higher.
Now, this supply tailwind for real estate is arguably the most important…
But as we’ve seen, multiple factors could send home prices higher from here.
If you’re in the market for a new home, it’s rarely been cheaper to take out a loan. Plus, there’s plenty of demand with not enough homes to go around.
So if you’ve been waiting to refinance your house, stop putting it off like I did.
These combined factors could send housing prices soaring. And it makes real estate a great opportunity right now.
Good investing,
— Chris Igou
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Source: Daily Wealth