One Chart Proves Housing Can Soar in 2022

My wife got the text while we were in the design center...

"We got an offer on the house!"

While it wasn't a surprise, it was a big relief... because we'd already gone under contract to start construction on a new home.

My wife and I were comfortable taking that step without any offers on our current home. But we knew we'd rest easier once we had a buyer. If you've ever been in a similar spot, I'm sure you understand...

We listed the house for sale roughly two weeks before Christmas. I knew it might be quiet going into the holidays. But with no real interest after the first week, I couldn't help but wonder if the appetite for homes was dying down in our area...

Nearby homes had been going under contract within days of listing. A couple of homes were even under contract within 48 hours.

So after a week with no showings, I was getting nervous. But that changed quickly after Christmas.

We had four showings in less than 24 hours. My wife and I had to request 12-hour notice so we could plan how we'd spend our day. It's tough to mess up an 8-month-old's nap schedule... But I was thrilled folks were interested. And now, we get to focus on customizing our new home.

Most sellers in the U.S. today are enjoying the same advantages. Demand for homes is high. Even in the depths of winter, folks are eager to buy.

Importantly, this type of demand will likely remain high for months, if not years. And that means the current housing market can keep booming far longer than most folks imagine.

In fact, I can prove the housing boom isn't anywhere near over – with a single chart...

This one indicator shows why the run-up in prices can continue. And it gives us a good idea as to when the housing boom will finally slow down.

It's called the Housing Affordability Index. It drills down into conditions for homebuyers by looking at a handful of factors... including things like how cheap it is to take out a mortgage and how much folks earn.

For example, if mortgage rates are high, that means it's expensive to take out a mortgage. The cost to borrow is high, and that deters potential buyers.

Another is income. If folks are struggling financially, they're less likely to go on the hunt for a new home.

Today, housing affordability remains strong, despite soaring home prices. We can see this in the chart below.

The index shows what the typical homebuyer in America can afford when buying a typical home. The higher the number, the more the buyer can afford. Today, the average homebuyer is in good shape. Check it out...

A reading of 100 tells us a typical American can afford a typical house in the U.S. A reading of 150 tells us they can afford 150% of the typical home price.

That's where we are today. The average American can easily afford a home. The chart also shows that affordability is down from its high back in 2012... But remember, that was in the depths of the housing bust. Home prices had plummeted. And incomes were still recovering from the financial crisis as well.

So this isn't the most affordable market of all time. But it isn't a tough market for buyers just yet.

Mortgage rates are still low in the U.S. And while they're rising now, history shows that doesn't necessarily mean they're in an ongoing upward trend, as I explained last week. We're also in a booming economy... Despite the effects of COVID-19, unemployment sits at just 3.9%.

That's a huge tailwind for housing. It's also one reason why today's real estate boom is likely to soar through 2022.

Sure, home prices are up 15.8% year over year as of December. And we've seen double-digit increases for months. But there's still plenty of upside left.

Good investing,

Chris Igou

Further Reading

"The average 30-year mortgage rate in the U.S. just hit a 52-week high," Chris writes. That might sound like bad news for the housing boom, but it's not as dire as you might think... Read more here: So Mortgage Rates Hit a 52-Week High... What's Next?

The real estate sector has experienced supply-chain problems and building delays throughout the pandemic. But that doesn't mean the housing boom is going away any time soon... Learn more here: Homebuilders Adapt to a Crazy Housing Market.

Market Notes
THIS SPICE KING JUST HAD A RECORD YEAR

Today, we’re looking at one of our favorite types of investments…

Longtime readers know we love investing in “World Dominating Dividend Growers.” These are businesses that stand at the top of their industries. They have powerful brands, fortress-like balance sheets, and they consistently raise their dividends. Today’s company is a perfect example…

McCormick (MKC) is a global leader in spices and condiments. It reaches consumers in more than 170 countries and boasts popular brands such as Old Bay, Frank’s RedHot, and French’s. McCormick’s products have been kitchen must-haves since 1889 – and that means consistent profits… The company recently reported record sales growth in 2021, with sales up 13% from 2020 to $6.3 billion. It also raised its quarterly dividend for the 36th consecutive year.

As you can see, MKC is up roughly 120% over the past five years (including dividends), recently hitting a new 52-week high. Back in March 2020, the Stansberry Portfolio Solutions team recommended the stock in The Forever Portfolio… And subscribers who followed their advice are up more than 60% since then. Congrats to the team on a great call!