2 Scary Things You Need To Know About The Housing Crisis

And we’d love thoughts on housing from you — Juice subscribers [View in browser]( [The Juice Logo] Proprietary Data Insights Top Homebuilder Stock Searches This Month Rank Ticker Name Searches #1 [LEN]( Lennar Corp 8,933 #2 [DHI]( DR Horton 8,172 #3 [PHM]( PulteGroup 5,383 #4 [NVR]( NVR Inc 3,967 #5 [KBH]( KB Home 2,692 #ad [Navigating Market Volatility: The Alt Advantage]( Brought to you by [The Spill]( [Dive into Expert Picks - We Spill the Best Daily!]( [ The Spill - Dive into Expert Picks - We Spill the Best Daily!]( Tired of stock search exhaustion? We've got you covered! We keep an eye on FinPros, distill their top picks, and serve you one daily. Make your inbox the go-to for expert insights. [Sign up today.]( 2 Scary Things You Need To Know About The Housing Crisis Last week, in [America’s Housing Crisis: From Bad To Worse](, we detailed how you need to read between the lines when you read about any apparent decrease in housing prices: Declines in ultra-expensive and what used to be the hottest of hot real estate markets don’t mean much, particularly in relation to the affordability crisis. If you couldn’t afford the payment on a, say, $1.5 million house in San Francisco, Seattle, Portland or Phoenix, are you suddenly well-positioned to comfortably qualify for and take on the obligation at between 8.7% and 3.2% less? Obvious answer, no. And, unfortunately, many of the markets going up in price (and contributing to an overall housing market that remains near-record expensive) are the ones once considered affordable. While places such as Cleveland might remain affordable to some, the point is they’re becoming more expensive. With every move up, more people get priced out. An update on those numbers in a second, but first today’s first scary thing about the housing crisis. In late December, we last mentioned a group of stocks The Juice has been bullish on for a long, long time. Homebuilder stocks. Particularly the names that populate (scroll up) today’s Trackstar top five. Here’s what we said in that installment, which discussed [our top stock picks for 2024](: From there, The Juice [still loves homebuilder stocks](, which we were all over in 2023. PulteGroup (PHM), DR Horton (DHI), Lennar Corp (LEN), NVR, Inc (NVR) and M/I Homes (MHO) all continue to crush it. If you have the capital, consider a similar dollar cost averaging strategy we suggested for tech with the homebuilders. Those five tickers — PHM, DHI, LEN, NVR and MHO — are up 122%, 65%, 60%, 52% and 183%, respectively, YTD. We don’t like to brag, but damn, we continue to crush it on those names. Toss in KB Home (KBH) and this group of stocks keeps on outperforming. Stock YTD performance One-year performance Lennar Corp (LEN) +11.4% +66.5% DR Horton (DHI) +2.5% +61.8% PulteGroup (PHM) +11.0% +107.0% NVR Inc (NVR) +9.8% +44.2% KB Home (KBH) +11.9% +95.4% M/I Homes (MHO) -5.4% +110.2% Almost across the board outperformance. That said, we have to wonder if it’s time to pump the brakes and take some gains on these names. There’s no doubt the US needs housing, however, a significant chunk of the units getting built are multi-family. We need to revisit that at a later date. However, at the moment, let’s consider single-family building/permits, which have plummeted. That’s our #1 scary thing. According to Point2Homes: - In 2023, 1.4 million new homes were constructed, a 4.2% increase from 2023. - However, multi-family development increased 22% annually, so that’s where the gains came from. - The number of dwellings under construction dropped 9% year over year. - The number of permits issued declined 11% over the same period. - In 2023, there was a 22% increase in multi-family units completed and a 2% decrease in single-family homes. - 70% of all US metros saw a decrease in permit activity in 2023. While the NAHB/Wells Fargo Housing Market Index (HMI), which [measures]( homebuilder sentiment, has been trending higher since November, it’s still well a ways away from its most recent peak in July and almost half of what it was in February 2022. Of course, demand on the homebuying side has a lot to do with it. But, homebuilders feel some of the same pressure that high interest rates bring. So, at the moment, we’d rather take profits on these stocks and slowly consider multi-family focused builders. We’ll dig into that area at some point in the next few weeks. But, the #2 scary thing — those still crazy ass housing prices. Bill McBride, who writes the [Calculated Risk]( housing blog (one of The Juice’s 100+ financial media partners), likes to look at inflation-adjusted housing prices. In other words, what are housing prices in real money, as purchasing power of the dollar erodes over time. Bill continues to look and the looking ain’t good: It has been over 17 years since the bubble peak. In the December Case-Shiller house price index … , the seasonally adjusted National Index (SA), was reported as being 70% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 10% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 1% above the bubble peak. People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $426,000 today adjusted for inflation (42% increase). That is why the second graph below is important - this shows "real" prices … In nominal terms, the Case-Shiller National index (SA) and the Case-Shiller Composite 20 index (SA) are both at all times highs. Both indexes increased in November … In real terms, national house prices are 10.2% above the bubble peak levels. There is an upward slope to real house prices, and it has been over 17 years since the previous peak, but real prices are historically high. The Bottom Line: With interest rates stubbornly hovering around 7% on a 30-year mortgage, there’s just no single piece of good news to report on housing. And, from the pour salt in the wound department, if rates come down, expect a flood of buyers to flood the market, further constraining supply and jacking prices up even higher. We’re working on a Juice with reader feedback on housing. Fellow subscribers discussing their situations and giving us their two cents on the crisis. Use the feedback link at the bottom of the page to send us your thoughts and experiences so we can possibly include you in that installment. 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