Market Update - From Stansberry Newswire
Low housing inventory is capping sales due to the inability to satisfy demand.
The median sales price for a new home hit a record-average price of $390,500 in July.
Federal Reserve policy tightening could push prices lower, triggering a new wave of home buying.
When the housing market's booming, you can bet the whole economy is, too...
And recent economic data supports this, indicating there's more upside ahead for the housing sector.
Housing is one of the most important drivers of overall economic activity. The National Association of Homebuilders ("NAHB") estimates that residential investment and housing-related consumption typically account for roughly 15% to 18% of annual gross domestic product ("GDP").
And the housing boom translates to more growth for related businesses, such as furnishings, lighting, and lawn service, among others. All that spending translates into new jobs and better wages, aiding domestic output. That, in turn, should provide new energy and support for the current economic cycle.
Recent data tells us housing market momentum continues to build... U.S. homebuilders can't supply houses fast enough to meet demand. That has sent prices skyrocketing. But if you think you've missed the opportunity to take advantage of this trend... don't worry. As you'll see, Americans have more than enough money to chase those ever-higher prices... making this a great time to invest in the sector.
Pending home sales fell 1.5% in June from the month prior, according to the National Association of Realtors ("NAR"). The NAR's pending home sales index now sits at 112.8, still close to the highs set late last year.
That came as a surprise to Wall Street, which had expected no change following May's 8.3% gain. The reading also surprised NAR Chief Economist Lawrence Yun, who noted eroding home affordability. However, Yun said buyers are still interested in owning a home, but record prices are creating hesitancy.
And when we dig below the headline data, it's increasingly clear that housing is only going up from here – at least for a while – for three reasons...
There simply aren't enough homes in America to meet demand.
Sales of newly constructed homes rose 1% from the month prior to an annualized rate of 708,000 according to the Census Bureau. That was above Wall Street's estimate of 697,000. It marked only the second gain in the last five months.
Existing home sales saw a similar story. NAR reported a 2% increase from 5.87 million sold in June to 5.99 million sold in July. That exceeded analysts' expectations for 5.83 million existing-home sales.
Low inventory is capping sales, and the increased number of buyers competing for the same property is driving prices up. That's forcing some buyers out of the market... and that means they're waiting for a pullback to pounce.
Prices are soaring everywhere in the country, not just a few hot markets..
The cost of a house is up nearly 20% from this time last year according to the Census Bureau. The figures hit a record-average price of $390,500 in July because of low inventory. Reuters noted at the current pace of sales, available housing inventory could be exhausted in 2.5 months. That's versus 4.5 months at the same time in 2020.
Finally, folks have plenty of money to keep buying... and pushing prices up.
Half of all buyers in April used a conventional mortgage according to the Wall Street Journal. In other words, they put at least 20% down. That's only happened three times before – all in the last year.
Despite the fact that the number of transactions is falling, availability will remain an issue. And price gains are more than offsetting the decline... which means it's going to remain a seller's market.