Our Lesson From an Overblown Housing 'Boogeyman'

This is one of the quickest ways to ruin your portfolio...

I don't care if you are a market veteran or a newbie. You need to understand this idea.

Fortunately, it's simple...

Don't let the next "boogeyman" headline dictate your portfolio decisions.

There will always be a reason not to buy stocks. And focusing on fear-inducing headlines will almost always lead to bad investing decisions.

You see, the financial media will do its best to make the next boogeyman as scary as possible. And it will seem like you have to act right away to save your money... But that's almost never the case.

This happened recently in the housing market. And as I'll share today, it was a boogeyman you were smart to ignore.

Let me explain...

The housing market has been booming since the pandemic began nearly two years ago. And that has investors wondering what will kill this bull market.

A recent concern was the end of the eviction moratorium the U.S. government originally put into place in September 2020.

The goal of the moratorium was to protect renters who were being hurt by the pandemic. And when that aid was set to expire this past summer, the headlines pounced on investors' fears...

Before long, the media was saying the return of evictions would kick off the next housing crisis. Here's a headline from CNBC back in May...

It wasn't just CNBC running headlines like these... Boogeyman stories about the housing market were popping up all over the place.

And the fear got worse. Just look at this July headline from the Economist...

A "wave of foreclosures" would be bad news for the housing market. It would mean a boost in supply. It could hurt both prices and overall demand.

It's a perfect example of what a boogeyman looks like for investors.

First, it affects a wide range of people. Second, it invokes fear of a market crash coming on the heels of foreclosures. And most important, you don't have much time to prepare for it...

Bailing on the housing market in the summer wouldn't have been a smart move, though.

The eviction moratorium ended in August... But we haven't seen anything like what the media headlines were calling for.

Houses aren't foreclosing at a large scale. In fact, home sales in the U.S. are still high. Market supply is still near zero, and demand continues to rage.

One of our favorite ways to gauge the strength of the housing market is to look at the total months of existing home supply. It shows how quickly we could sell all of the existing homes on the market.

When supply is vast, it takes longer to get rid of existing inventory. And when inventory is tight, buyers snap up homes quickly.

Today, it would take a little more than two months to sell all existing homes based on investor demand. That's near the lowest supply on record. And it's darn bullish for the housing market.

This is certainly not the takeaway you would have gleaned from reading the media's boogeyman headlines...

Four months have passed since the eviction moratorium expired... Yet, the housing boom is still in full swing. Homebuilder stocks are up another 8% since the end of August. And they are up 19% since their September bottom.

Simply put, this housing boogeyman didn't kill the boom. And that's an important lesson for investors.

There's always going to be a boogeyman to worry about. But that doesn't mean you should let your fears drive your portfolio decisions.

Instead, focus on the facts – and only take action when they change.

Good investing,

Chris Igou

Further Reading

The pandemic upended almost every aspect of our lives. And with many of those issues still lingering, homeowners found themselves falling behind on their payments. While it seems like this could topple the real estate market, we don't expect the housing boom to end anytime soon... Read more here.

"When it comes to housing, it's always about supply and demand," Steve writes. The supply imbalance in the housing market today means home prices can rocket even higher... Get the full story here.

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