Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

US Housing Market Is Booming, but Investors Are Still Too Scared to Invest in It

Housing-Market / US Housing Jul 04, 2019 - 06:38 AM GMT

By: Stephen_McBride

Housing-Market

The US housing market is booming.

This past month the number of Americans looking to buy a new house spiked to a three-year high. Mortgage applications jumped 40%.

And Quicken Loans, the US’s largest mortgage lender, had its best month in 30 years.

“The phone is ringing off the hook” CEO Jay Farner said in a recent interview.


The Housing Crash Sowed Fear Among Investors

In February I explained why buying homebuilder stocks was a near lock to make you money in 2019. Specifically, I recommended buying homebuilder NVR Inc. (NVR) among other disruptive stocks I see skyrocketing in the coming years.

I have to admit, my housing call wasn’t popular. US housing, as we all know, crashed in 2008 and almost wrecked the global financial system. Many people lost hundreds of thousands of dollars. Some lost their jobs, their houses, their businesses.

The housing crash was perhaps the most financially disruptive event of the century. It caused a whole generation of folks to swear off housing as an investment.

I understand why no one wants to hear about housing. But you should want to hear about housing, because the evidence is overwhelming.

As a refresher, 2018 was a terrible year for housing. Mortgage rates rose significantly for the first time in five years, which made it more expensive to buy a home. Home sales plunged. Lots of analysts warned of another 2008-style real estate meltdown.

This all led to the slaughter of US homebuilding stocks. 2018 was their worst year since the 2008 financial crisis! The US Home Construction ETF (ITB) plunged 32%, as you can see here:



But everyone failed to realize one thing...

Housing Affordability Tells We Are Nowhere Near a “Bust”

Housing affordability is a primary driver of home prices. And housing is still very affordable for most Americans.   

The National Association of Realtors affordability index takes three key metrics—home prices, mortgage rates, and wages—and boils them down into a single number.

This number tells us if average folks can afford a home. When affordability drops too low, the average American simply can't afford to buy. That often forewarns a housing bust.

Here’s the index going back to 1992:



You can see affordability is well above the 30-year average, as shown by the red line.

This is key because every housing bust in the past 50 years happened when affordability was below 120. We’re nowhere near that level today... which tells us the risk of a “bust” is virtually zero.

There’s a Big, Silly Myth Going Around About Housing

Have you heard this “fact?”

Today’s generation of young adults, known as “millennials,” don’t want to own houses like their parents did. Instead they’ll rent for life. This lack of young buyers, the story goes, will put a cap on house prices.

This is nonsense. The data shows it isn’t just false… the total opposite is happening.

Census Bureau figures show the number of households in America just hit an all-time high at 122 million.

At the same time, the number of Americans who own their own home has jumped in the past three years. That’s significant as the rate had been plunging for over a decade.

As for the number of folks renting rather than owning a house, the number has plunged for three years in a row.

In other words, folks are buying houses faster than any time in the past 30 years.

Millennials are waiting longer than their parents to have kids. But once they have kids, they’re buying houses... just like every generation of middle-class Americans before them did.

Pew Research data shows the average age of a first-time home buyer is 31. This year the average millennial will turn... 31!

The Outlook for Housing Gets Even Better

There’s a shortage of homes in America.

After the 2008 housing bust, tens of millions of vacant homes were for sale. That’s no longer the case. It would take only six months to sell every existing home on the market today, as you can see here:



The seeds of this shortage were sown in 2008. In the boom leading up to the bust, US homebuilders built record numbers of houses. Four million new houses went up in 2004 and 2005 alone—more than any other two year period in US history!

As you know, the market turned south in 2006, demand collapsed, and US homebuilders lost their shirts. America’s largest homebuilder, D.R. Horton (DHI), tanked 86%.

The housing bust seared one thing into homebuilder’s minds: don’t overbuild EVER again.

So for the past decade they’ve been conservative. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet since 2009 just 900,000 homes have been built per year.

Now Is a Great Time to Buy NVR

NVR is unlike any other US homebuilder. In short, most homebuilders buy raw land then build houses on it.

NVR never buys raw land. It only buys developed land, which removes a lot of risk. This unique approach helps it avoid the riskiest part of the housing business.

When I recommended NVR back in February, it was trading at just 13-times earnings—its cheapest level since 2009. Because the stock has jumped 30% since, it’s no longer a “steal.” But it’s still a great buy, and it’s still dirt cheap.

NVR achieved excellent profit growth of 40% last year, and its stock has been on a tear since the start of the year, as you can see here:

By Stephen McBride

http://www.riskhedge.com

© 2019 Copyright Stephen McBride - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules