[RiskHedge Report] Can this historic housing boom continue? [Stephen McBride] By Stephen McBride - RiskHedge   âThese prices simply donât make senseâ⦠âI foresee a crash within one yearâ⦠âMy plan is to wait it out and see how it all unfoldsâ⦠Over the past few weeks, many of you have been asking me the same question⦠And itâs an extremely important one. US housing prices are rising at the fastest pace since 2006⦠can this possibly continue? Iâll get the short answer out of the way firstâYES. In fact, my research says weâre just getting started. And it all has to do with one key metric. Iâll explain what that is in a moment, as well as the #1 way to take advantage of it. But first, you should know that youâre not the only ones concerned about todayâs âcrazyâ prices. - In fact, the number of Americans typing âhousing crashâ into Google hit a record high. Take a look: And just last week, the White House said it was âconcerned about rising US home prices.â Look, thereâs no denying housing prices have taken off like a rocket in recent months, [and Iâve been calling it over the past year](. The number of Americans buying new houses recently spiked to a 15-year high. National Association of Realtors (NAR) data shows house prices are rising at the fastest pace since 2006. The CEO of homebuilder Toll Brothers recently said, âWe are currently experiencing the strongest housing market I have seen in my 30 yearsâ¦.â In short: Housing is as strong as itâs been since the 2008 housing bubble. So it makes sense that many folks are nervous. The â08 housing crash was one of the most financially disruptive events of the century. Housing is what I call a âhot stoveâ investment. It burned a whole generation of Americans, and theyâll be damned if they ever touch that stove again. - But when you check the housing marketâs âpulse,â youâll see this boom is nothing like the â08 bubble. And it has to do with one key metric most folks are ignoring today. Housing affordability is an important driver of home prices. And housing is still very affordable for most Americans.   The National Association of Realtors affordability index takes three key metricsâhome prices, mortgage rates, and wagesâand boils them down into a single number. This number tells us if the average Joe can afford a home. When this affordability number drops too low, it means the average American can't afford to buy. That often forewarns a housing bust. Affordability has dipped from generational highs in the past few years. But itâs still well above the 30-year average. In fact, the index hit 173 last month, which is one of the âmost affordableâ readings since records began in 1971. This is key because every housing bust in the past 50 years happened when affordability was below 120. Weâre nowhere near that level today... which tells us the risk of a âbustâ is much, much lower than the media will have you believe. Put another way⦠thereâs no evidence folks should be worried about a housing blowup. - I recently picked up the phone and called housing expert Barry Habib. If you donât know Barry, heâs the founder and CEO of leading real estate advisor MBS Highway. Heâs an âinsiderâs, insider.â He spends his days talking to the biggest players in the US housing market. In short, he knows whatâs really going on in housing. I grilled Barry on affordability, and hereâs what he told me⦠âStephen, people talk about affordability as being a problem. Thatâs because they look at the wrong metrics. This is the seventh most affordable market on record.â Barry said folks are looking at record high median home prices, which is misleading. [Regular RiskHedge readers know thereâs a massive shortage of homes in America today.]( In short, there are almost no low-end homes on the market today. So buyers are being forced to bid on bigger homes, which is âskewing the median home price higher.â And as I mentioned, affordability isnât just the price you pay for the house. You also have to factor in mortgage rates and wages. Barry emphasized low rates and rising wages have more than offset the bump in real estate prices: âStephen, if interest rates stay stable, a 2% rise in income can handle a 10% rise in home prices. And right now, weekly earnings are going up at 7%. So can we handle 10% appreciation? 15%... 20%? Easily.â With mortgage rates still near record lows, the average Americanâs monthly payment is less than what it was in 2005⦠2006⦠or 2007! - Buying homebuilder stocks is my #1 way to play the housing boom. Remember, thereâs a massive housing shortage in America right now. And the solution to Americaâs housing woes is simple: Homebuilders HAVE to build more houses. And after years of sitting on their hands, builders are finally getting back to work. Last month, new home âstartsâ shot up to their highest level since June 2006. The number of building permits granted surged to their highest level since March 2007. [Thatâs why Iâve been pounding the table on homebuilder stocks.]( The Homebuilders ETF (XHB) debuted on the stock market in May 2006. It basically nailed the top of the housing market. Homebuilder stocks cratered 80%+ over the next three years as the bubble deflated. In fact, homebuilders have struggled to get back above their 2006 highs. The $46/share level proved to be a âceilingâ in 2006⦠2018⦠and March 2020. But look what happened in just the past few months: Homebuilders conclusively broke above that former ceiling after 14 years of being stuck in no manâs land. I believe this marks the start of a new housing boom that will see homebuilders rip higher in the coming years. Do you agree that his housing boom will continueâor are you expecting an â08-style crash soon? Tell me at stephen@riskhedge.com. âStephen McBride
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