May 18, 2021
The housing market has been crazy…
Open houses are flooded with potential buyers, and homes seem to go under contract within days of being posted for sale.
I (Laura Greaver) even have friends who are considering selling their house to capture the high profits and renting a place until prices settle back down to normal.
Add to that the insane price of lumber and other building materials for new homes, and everyone’s wondering if this is the top…
When I got this idea for a story about the housing market, I immediately thought Chris Igou had to be the one to write it. Chris works side by side with Dr. Steve Sjuggerud on all his financial research publications. He also surfs alongside Steve, too. Steve and Chris take advantage of the Florida waves when they aren’t analyzing market trends and stock valuations – real estate included.
In this exclusive article for American Consequences, Chris addresses the sizzling-hot housing market we’re all seeing right now… but explains why more gains are on the way.
Yes, the Housing Market Is on Fire Right Now… No, It’s Not the Top
by Chris Igou
The housing market might feel a bit crazy right now. Prices have soared to new heights in 2021.
But today I’m going to explain why higher prices alone don’t signal that a top is near…
In fact, those higher prices are likely to keep climbing.
There’s been a tangible shift in the housing market in recent years… As the shortage of existing homes for sale grows, buyers are turning toward new construction.
According to CNBC, about one in four homes for sale right now in the U.S. are newly built, the highest ever. (Compare that with the standard average of one in 10.)
Lumber prices seem to set a new record almost daily, now up 67% this year and up 340% from a year ago.
To say there’s a housing shortage is an understatement… There are more buyers in the market than there are homes by a wide margin. And last month, we saw another sign of that imbalance.
Mortgage finance company Freddie Mac recently came out with a shocking number. Homebuilders need to build 3.8 million single-family homes to meet current buyer demand in the U.S… marking a 52% increase in the housing shortage since 2018.
That’s a huge jump in just a few short years. And it highlights how extreme the imbalance is in the housing market today.
Right now, supply is near all-time lows. And that’s likely to send U.S. home prices even higher.
When supply can’t keep up with demand, home prices are bound to rise. That’s just economics in action. And today, the housing supply remains near all-time lows.
We can see this through the U.S. Existing Home Sales Months Supply Index which measures how long it would take to sell the current supply of homes on the market.
The data is shocking – take a look…
The existing home supply hit a record low of 2.1 months in March. Today, it would take just two months to wipe out all U.S. housing inventory based on current demand.
If you look at the early 2000s housing boom, home supply hovered around four months. That’s relatively low based on history. And housing prices soared back then…
Home prices rallied more than 85% from early 2000 to mid-2006. That’s a big jump in just six years. We’ve seen a similar boom since supply dropped back to around four months in 2012.
Prices are up 63% from the end of 2012 to the end of 2020. The same lack of supply that drove home prices higher back then is still in place today.
So yes… the recent surge in the housing market might feel crazy. But it isn’t a sign that the top is near.
It’s simply a result of a major lack of supply. Homebuilders need to put up millions of homes to close this gap. They’ll do it… But it won’t happen overnight.
So while the housing market is crazy – with homes selling lightning-fast and prices soaring – you shouldn’t bet on a crash anytime soon. Prices can still move much higher from here.
Even more, while the entire U.S. is booming, certain markets are leading the rest. That’s exactly what we are seeing here in Florida…
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Back-to-Back All-Cash Offers Above Asking Price
I live just outside of Jacksonville, Florida. And the housing market in our local area is booming.
Take my friend Brad, for example. Brad bought his home back in February 2019. It was a brand-new house with three bedrooms and two baths… the opposite of a fixer-upper. It’s got marble countertops, a nice fenced-in back yard, and a two-car garage.
He ended up buying it for $305,000. Then, after selling his local business in 2020, Brad decided he was going to list his house on the market and travel on some of the profits.
Nearly two years to the day from when he bought it, Brad sold his house in an all-cash deal… And the cash offer was above his asking price of $380,000.
What’s even crazier is that he also had a second buyer lined up if that deal fell through. And the backup offer was another all-cash offer for roughly $10,000 more than the first one.
Again, this wasn’t a fixer-upper… Brad didn’t add value by upgrading the house in the two years he was there. He didn’t do much other than maybe painting a few rooms… But the value had increased by $80,000 (or more, based on the second offer) just on price appreciation.
The reality is that this kind of experience isn’t an outlier. In fact, this is fairly common in today’s housing market… especially here in Florida.
And there’s an underlying reason for such high demand…
The Pandemic Escalated a Massive Trend in the U.S.
New data shows that the COVID-19 pandemic set off a new housing trend. We’ve seen an unusually large flow of urban residents out of New York and San Francisco.
Those aren’t just any old towns that folks are leaving behind. They are two areas where a lot of people can work remotely. And that’s allowing these people to move where they want.
People are fleeing big cities for places with no sales tax, warmer weather, and more bang for their buck.
The pandemic is scaring people from crowded cities to suburbs. We can see this through the home-buying trends in 2020…
The Wall Street Journal just came out with some hard numbers on how big the shift really is. And the transition is bigger than you might realize…
The number of households fleeing San Francisco doubled last year. And Los Angeles saw a 58% rise in households moving elsewhere.
The article highlights that many of those folks leaving LA moved to Arizona, Texas, and Florida. It’s not just California either. We saw similar shifts out of New York, Chicago, and more.
More people left Chicago and New York than the number who moved to those states.
Where are those big-city dwellers deciding to go? Well, places like Florida and Texas. Southern states saw the largest influx of people by far, according to the report. Low taxes, warm weather, cheap housing… what’s not to like?
This is the kind of nationwide shift that drives housing demand through the roof. It’s a major tailwind for states gaining new residents.
This is a generational change like America saw in the 1950s. That was the first major move from cities to suburbs in America, and we are seeing a similar migration today.
This trend helps explain why folks like Brad are getting all-cash offers above the asking price. Demand is soaring for homes in the U.S., especially in states like Florida and Texas.
Overall, the current home supply is non-existent. Homebuilders are way behind the curve to meet demand. And while they will eventually catch up, that can’t happen overnight.
This will drive overall housing prices higher in the U.S. But if we want to dig down even deeper, southern states are seeing even more demand than most places in the U.S.
If you’ve been on the sidelines of the real estate market, there’s still an opportunity to make money. Home prices will likely soar much higher from here before any type of slow down starts.
Now, buying land is a great way to profit from a real estate boom. But it often comes with unexpected headaches, and it can cost a lot upfront in order to take part in the rally.
If buying land isn’t an option, don’t worry. You can still profit from a housing boom without buying a single piece of property.
There are several ways to profit from this market… And the stock market offers several options to take advantage of this opportunity.
These opportunities can lead to triple-digit gains as home prices move higher in the U.S.
My colleague and mentor Dr. Steve Sjuggerud is an expert when it comes to making money as the market shoots higher. He even coined the phrase “Melt Up” to describe the investing blow-off top that happens at the height of markets… a term that’s now used all over financial news outlets.
Steve recently held a special, free investing event where he shared his predictions on where the market is headed and how you can make life-changing gains with just a few buys (including specifics on what to buy).
Love us? Hate us? Let us know at [email protected].
Managing Editor, American Consequences
With Editorial Staff
May 18, 2021