The Mortgage Crash Gave Us This
Big Opportunity in Housing Today
In 2018, the housing market was booming.
Prices for existing homes were on the rise. Sales were brisk. And builders kept planning more construction through the end of the year.
Then came news that existing-home sales fell 5% this March and continued falling in April. But the problem isn’t that people don’t want to buy houses… It’s that there aren’t enough houses to buy.
Simply put, the demand is there, but the supply is not. And that’s going to lead to rising prices.
To understand this, let’s have a quick and easy Economics 101 lesson…
One of the world’s most widely-followed analysts now says, “Stocks could double in the months ahead.” This PhD and multi-millionaire has made seven major predictions before. And so far, each and every one of them has come true. For the full details on his 8th, and most recent prediction, click here.
When demand exceeds supply, prices rise to bring the relationship back into equilibrium. There are very few times when you see an imbalance in a supply and demand relationship.
Since we have a free market in the U.S., supply should typically always meet demand. After all, if there’s demand that’s not being met, some entrepreneur will find a way to satisfy it. But we’re not seeing that today in one industry.
For years the economics in this sector have been off, and that has created a buying opportunity today…
There was a homebuilding boom in 2000-2005 because demand for homes was through the roof. Everyone needed to have that new five-bedroom house, so housing starts – an indicator that reflects how many new homes are being built – skyrocketed.
Then the housing market collapsed. And we saw new home construction crash during the recession.
But the economy slowly began to recover after 2010. Unemployment started falling. Wages slowly started to increase. Consumers gained confidence and were spending again, and they were ready to buy new homes…
The only problem is that homebuilders didn’t keep up with demand.
Even though housing starts gradually increased, demand still far exceeds supply.
The problem isn’t that there aren’t enough people selling homes to match the number of buyers… It’s for lack of inventory.
Out With the Old…
The below chart shows the ratio of houses for sale versus houses sold. When the ratio is low, it tells us that buyers have few homes to choose from.
The homes that are on the market are extremely old, too. According to the National Association of Home Builders, the median age of owner-occupied homes in the U.S. is more than 35 years. More than half of all homes were built before 1980 and 38% were built before 1970.
When potential home buyers – consumers who have benefitted from a growing economy and a raging bull market – are looking for new homes, a 30- or 40-year-old house isn’t first on their list. They want something new… a house that doesn’t need constant maintenance and repairs.
The point is that there are too few homes buyers want on the market today. More homes need to be built… Period.
More Bang for Your Buck
Another positive for the housing market is mortgage rates. Mortgage rates have dropped in recent months, which makes homes more affordable to buy.
Just a few months ago, rates were close to 5%. While a 1% difference may not seem like much, it can add more than $100 to a standard monthly loan payment (assuming a 20% down payment on a $300,000 home). Over the course of 30 years, that’s tens of thousands of dollars.
Today, the setup for homebuilders is just too good to pass up. And stocks that are involved in home improvement will benefit as well. The houses on the market right now are just too old.
If you have some extra cash floating around and want to put it to use, I think a play on housing is a smart move. I think there are more profits to come.
Subscribers to Dr. David Eifrig’s Retirement Millionaire service are up nearly 45% on a housing-related stock he recommended in April 2018… one of over 20 open and “winning” positions up as much as 76% on average.
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Dr. David Eifrig worked in arbitrage and trading groups with major Wall Street investment banks, including Goldman Sachs, Chase Manhattan, and Yamaichi in Japan. In 1995, Dr. Eifrig retired from Wall Street, went to UNC-Chapel Hill medical school, and became an ophthalmologist.
Today, he publishes a 100% free daily letter on both health and wealth that shows readers how to live a millionaire lifestyle for far, far less. Click here to learn more.