Stocks might have had a surprising turnaround this year. But it’s getting upstaged by what we’ve seen in the housing market…
You see, housing doesn’t just have the eye of investors. Practically every American adult watches real estate. And around this time last year, nearly everyone believed a 2008-style housing bust was coming.
Of course, that crash never happened. The reasons why might seem complicated at first. But simply put, housing remained in short supply – even though the fundamentals nosedived.
Thanks to this dynamic, the housing market weathered the storm better than most imagined possible. On top of that, sentiment is finally turning around. And that means the worst of the housing slowdown is behind us.
Let me explain…
Reasons to bet against housing just kept stacking up in 2022. Interest rates were soaring… And that sent mortgage rates on a painful ascent.
The 30-year mortgage rate jumped from less than 3% in late 2021 to last year’s peak of 7%-plus. Housing affordability cratered, dropping to the lowest level in well over a decade.
It looked like a surefire setup for massive home-price declines. After all, homes don’t sell if folks can’t even afford them. And if they don’t sell, then the only way to get folks to buy is to lower prices.
Home prices didn’t get slashed, though – at least, not by much. We can see it in the S&P CoreLogic Case-Shiller 20-City Composite Home Price Index.
This index looks at home prices in 20 major U.S. metropolitan housing markets. Just zoom out to the past two decades. As you can see, home prices barely fell at all…
The most recent decline started in June 2022 and ended in February. And that was a drop of just 4.6%. Even more, the largest year-over-year decline we’ve seen during this dip was less than 2%.
Now, prices are back on the rise. And that recent uptick will likely continue, bolstered by the recovery in sentiment…
We can best see housing sentiment through a monthly survey of members of the National Association of Home Builders (“NAHB”). The survey asks these folks to rate market conditions for selling new homes right now and in the next six months. The responses are built out into the NAHB/Wells Fargo Housing Market Index.
Not surprisingly, sentiment slipped throughout last year – before crashing in December. But now, folks are less worried. Take a look…
Sentiment lingered at pandemic-era lows earlier this year… But it has since staged an incredible recovery. We’re darn close to a one-year high. More important, we’re back above a reading of 50.
That reading of 50 is crucial, according to history. We’ve seen sentiment fall below that level plenty of times, generally during recessions. But we’ve never seen a “double dip” below that level from the same economic turmoil. It’s always a new crisis that causes the index to slide below 50 once again.
Basically, once sentiment gets back above that level, it likely won’t drop again anytime soon. In other words, all the folks who are watching the housing market can breathe easier. And that’s where we are today.
Some of housing’s headwinds are still around. For instance, mortgage rates remain high. But folks are getting more used to them with each passing day.
Meanwhile, the housing-supply shortage is still a problem that can’t be fixed overnight. This deficit of homes on the market has already set a floor under prices. And that should help launch us back into the boom that was underway in 2021.
In simple terms, the housing market is back. And unless we get another crazy shock to the system, the boom could last for years.
Good investing,
Brett Eversole
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Source: Daily Wealth