Get Ready for Gains in the 10-Year Housing Market Boom

  • The red-hot housing market of 2004-05 was driven by bad lending practices, and under-earning households were burdened with loans too big to pay back.
  • Now millennials and baby boomers are converging to create the biggest homebuying demand surge we’ve seen in decades.
  • After a decade of underbuilding, we have an enormously supply-constrained market that won’t resolve itself quickly.

[Editor’s note: “Get Ready for Gains in the 10-Year Housing Market Boom” was previously published in December 2021. It has since been updated to include the most relevant information available.]

Until recently, the housing market was on fire.

surburban homes on a cul-de-sac (housing stocks)

Source: Shutterstock

In 2021, home prices in the U.S. rose by more than 10% year-over-year for 10 straight months. For context, over the past five years (2015-2020), annual home price appreciation rates have hovered right around 5%.

The last time the housing market was that hot was back in 2004-2005. At that point in time, home prices had rattled off 27 straight months of over 10%-plus year-over-year growth. That was right before the housing bubble burst.

In 2022, that housing market hot streak has cooled a bit. With runaway inflation, the Fed has embarked on an aggressive rate-hiking path. But home prices are still high. And these rate hikes are impacting affordability and pushing demand to the sidelines.

And fearing a repeat of the previous crash, many pundits warn we are heading into a similar “bubble bursting” these days.

But we aren’t. Instead, we’ll see some much-needed housing market stabilization — ahead of a 10-year bull market.

Here’s why.

An Incoming Bull Market

The red-hot housing market of 2004-05 was driven by bad lending practices. Greedy banks were giving out loans to just about anyone who asked for one. And those loans were being given out at exorbitant rates. The 30-year fixed mortgage rate averaged about 6% in those years.

The result? A bunch of under-earning households were burdened with loans too big to pay back. So, in the fourth quarter of 2007, mortgage debt service payments as a percent of disposable income soared to a record-high 7.22%. Then as soon as the economy started to hit shaky ground, people were unable to pay off their mortgages. And that kickstarted an unparalleled housing market crash.

Today’s housing market couldn’t be more different.

It’s not fueled by greedy banks giving out bad loans with high mortgage rates. Lending practices have been cleaned up. The 30-year fixed mortgage rate is around 5.5% these days. But that’s thanks to inflation-driven Fed rate hikes. Come early 2023, that rate should be on the decline. And mortgage debt service payments as a percent of disposable income have plunged to record lows of below 4%.

So, today’s housing market was hot for an entirely different set of reasons than it was in 2004-05. And it’s cooling off for different reasons, too.

Housing Market Drivers

In stark contrast, the drivers underpinning today’s housing market are durable – and will last for another decade, at least. Those drivers include:

  1. A demographic-related surge in homebuying demand. Millennials and baby boomers are converging to create the biggest homebuying demand surge we’ve seen in decades. Millennials have developed a reputation for postponing big life events, like getting married, having kids, and buying homes. Now they’re doing all those things, as they’ve mostly reached an age and income where doing so makes logical and financial sense. This translates into tens of millions of new homebuyers entering the market over the next decade. That’s at the same time that tens of millions of boomers are reaching the age where they’re looking to downsize. This coupling is creating a huge homebuying demand surge that should last throughout the 2020s.
  2. Very tight housing supply. After the 2008 housing market crash, homebuilders were hesitant to build lots of new homes because consumers were hesitant to buy them. This hesitancy lasted a decade, throughout which homebuilders didn’t build that many homes. And that created an enormously supply-constrained market that won’t resolve itself quickly. According to Stephen Kim, a housing analyst at Evercore ISI: “The industry would need to sustain a 2-million-starts pace for a decade to bring the industry out of its current underbuilt situation.” To that end, this market will be defined by low supply and high demand for the next decade. That’s a recipe for strong home price appreciation.
  3. A revitalized view of the importance of a home. COVID-19 changed the world in many ways. One of the most pronounced was a revitalized view of the importance of the home. The home is now where many of us work (thanks, Zoom (Nasdaq:ZM)), work out (thanks, Peloton (Nasdaq:PTON)), watch movies (thanks, Netflix (Nasdaq:NFLX)), and more. So long as consumers continue to do those things – and we believe they will for a long, long time – people will continue to place increased value in their homes.

Folks, this isn’t a bubble. The housing market is in the first innings of a decade-long bull market.

The Final Word on the Housing Market

That’s good news for homeowners, bad news for prospective home buyers, and great news for housing market investors.

We believe that housing stocks will be big winners throughout the 2020s. LGI Homes (Nasdaq:LGIH). PulteGroup (NYSE:PHM). KB Home (NYSE:KBH). Lennar (NYSE:LEN). Toll Brothers (NYSE:TOL).

All those stocks look like good buys for the next decade.

But that list doesn’t include the best housing stock to play the decade-long housing market boom.

Instead, the best housing stock to buy right now is a completely different type of company. It’s one that isn’t just a participant in the housing market. It’s completely redefining how the world buys and sells homes.

Here’s the thing: Nearly 40% of millennials – who are turning into the heartbeat of the housing market – are comfortable buying a home online.

Yep. You read that right. The home shopping market will shift online because the new buyers in the market want to buy homes online.

And at the epicenter of this trillion-dollar shift in the U.S. housing market is one technology startup – one tiny stock that will soar more than 10X over the next few years.

To find out the name, ticker symbol, and key business details of this explosive investment opportunity, click here.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2022/07/welcome-to-the-first-inning-of-the-10-year-housing-boom/.

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