The Current Housing Boom IS Sustainable

I know I might sound crazy…

After all, I’m betting on a multiyear boom when it feels like we’re in the middle of mania.

As I explained yesterday, real estate is the one asset that would make me give up gold forever. And yes, that’s true even given the wild times we’ve seen in real estate this year…

Homes just about everywhere are selling immediately, and above their listed prices. Many buyers, if they want a chance at homeownership, are being forced to waive their “safety nets” – like being able to back out based on an appraisal, or even setting foot in the home before putting an offer in.

It has created an even more hectic market than what I saw leading up to the housing crisis.

I doubt any of this is news to you.

But given all of those facts, you might wonder why I’m still so excited about housing… After all, we’ve experienced a decadelong boom already.

The answer is simple. While this might feel like a mania, it’s actually perfectly rational. And it will likely last much longer than most believe…

It’s economics 101…

Regular readers know I’ve been beating this drum a lot lately. But it’s important to understand.

What’s happening today isn’t wild speculation like we saw in 2004. It’s not folks quitting their jobs to “get rich quick” by flipping houses. It’s all about supply and demand.

Right now, we have a ton of buyers entering the market and not nearly enough houses for them to buy. It’s really that simple.

There are plenty of explanations for what’s going on…

COVID-19 always gets some credit. It has forced folks around the U.S. to reprioritize their lives… And that means making big changes to where they live and what they do for work.

Also, the millennial generation is becoming crucial to the housing market… Millennials are now the largest generation of homebuyers, according to the National Association of Realtors. And younger millennials (ages 22 to 30) are almost entirely first-time buyers.

The chart below should be familiar to readers. New home sales hit their highest level in 15 years in January. But as we’ll get to shortly, the imbalance here is even greater than you might realize. Take a look…

We’ve seen a decline in demand from the peak over the past few months – but you can see that new home sales are still up double digits compared to 2019 (before the pandemic). And they’re up nearly 30% over the past four years.

Meanwhile, the number of homes available for sale has fallen dramatically over the same period…

This chart shows the number of active listings in the U.S. at any given time over the past five years. And as you can see, we’re well below half the level from 2016.

Again, this paints a simple picture… Today’s apparent housing mania isn’t a mania at all. It’s simply a massive imbalance between supply and demand.

That means the current housing boom is more sustainable than almost anyone realizes.

Homebuilders can’t fill the supply gap overnight. That means the red-hot housing market we’ve seen can – and likely will – continue. And it leaves us with only one big question…

What are the best ways for you to take advantage of it?

There are two great answers to that question. And I’ll share them in tomorrow’s DailyWealth.

Good investing,

— Steve

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Source: Daily Wealth