2023 Housing Market May Be Different Than Expected

On December 20th, the Commerce Department released data showing that housing prices remain high, renter demand is still strong, and the supply and demand imbalance appears to show no relief.

These economic data points indicate that the housing crash, or pull-back many expected to see with housing prices in 2023, may not be coming.

Let's look at the numbers and then explain why a housing crash doesn't appear to be on the horizon in 2023.

The December housing numbers showed US single-family homebuilding dropped to a two-and-a-half-year low in November 2022. Permits also fell in November by 7.1% for single-family homes and 11.2% for overall building permits. Overall housing 'starts' dropped 0.5% in November, with single-family starts falling 4.1% and multi-family units up 4.8%.

So essentially, we are seeing that construction of new single-family homes is slowing when we are already in a tight supply-demand situation with those types of units. This supply shortfall comes from data showing that from June 2012 to 2021, the US had 12.3 million new households formed, but only 7 million new single-family homes were built.

The pandemic played a role in making this shortfall wider, as it is estimated that in 2019 the US was only short 3.84 million units. But, labor shortages before the pandemic started, which worsened during the pandemic, and costs of materials and land, all pushed housing prices higher.

Higher housing prices make it harder for more people to afford a home. Thus, fewer homes get built. High housing prices were likely one reason we didn't see more homes built in 2021. In 2022, the main reason was increasing interest rates. Again, higher interest rates push the overall cost of ownership higher, resulting in fewer people building homes.

Another interesting data point from December was the Homebuilders' confidence levels also plummeted in December for a record 12th month straight. This data point only adds to the idea that single-family homes will continue to be underbuilt in the near future. Continue reading "2023 Housing Market May Be Different Than Expected"

Housing Is A Booming Industry During The Pandemic

When the pandemic hit home and the Federal and State governments ‘shut down’ the country and U.S. economy in March, some industries were predictably going to perform well. The ‘stay at home’ stocks and technology companies or the online and big-box retailers that had web presence where obvious smart plays during a time when social distancing and avoidance of large public places was going to be for the foreseeable future. However, due to government policies, primarily low-interest rates, the housing industry has also become a powerful economy sector.

In August, existing-home sales were up 10.5% year-over-year at a seasonally adjusted annual rate of 6 million units. In August, new home sales hit 1 million units, which represents a 43.2% increase compared to August of 2019. If current sales rates continue as they have been, unsold inventory is just three months of supply, which ties December of 2019 for the lowest level we have seen in the last 20 years.

In hindsight, it makes perfect sense, but during the stock market crash in March and the fact that for the most part, the vast majority of American’s were stuck at home, it was hard to predict that the housing industry would boom in the middle of a pandemic. However, that is exactly what has happened, and as I mentioned, looking back now, it is obvious why housing would boom at a time like this. People are stuck at home and realize how much they don’t like their home, or they were living in densely populated cities and want to move to the suburbs and have more space.

With the unknown of how much longer Covid-19 and the pandemic will disrupt life as we knew it, there are a few housing-related Exchange Traded Funds that you may want to consider owning as a way to catch a piece of the housing boom, without investing directly into real-estate yourself. Continue reading "Housing Is A Booming Industry During The Pandemic"