Homebuilders Are 4 Million Homes Behind

Dear Wall Street Daily Reader,

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.

Let me explain…

The housing market might feel a bit crazy right now. Prices have soared to new heights in 2021. But higher prices alone don’t signal that a top is near.

In fact, those higher prices are likely to keep climbing.

When supply can’t keep up with demand, home prices are bound to rise. That’s economics in action. And today, housing supply remains near all-time lows.

We can see this through the U.S. Existing Home Sales Months Supply Index. This index measures how long it would take to sell the current supply of homes on the market.

Today, it would take just two months to sell off all existing inventory. Take a look…

Homes suply

Existing home supply hit a record low of 1.9 in January. Today, it would still 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.

Good investing,

Chris Igou
Lead contributor, True Wealth Systems
Stansberry Research

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