Why the Housing Boom Is Nowhere Near Over

The housing market is totally out of balance... but not in the way you might expect.

Considering that we're in the middle of a global pandemic and an economic recession, you'd think any market imbalance would be a bad thing. But that's not the case in housing.

We've seen the U.S. housing market boom for the last decade. And what's happening today tells me the boom can continue from here.

You see, the market can only fix this problem one way... supply and demand must tip back into balance.

When supply is thin and there aren't enough homes for buyers on the market, prices rise. When supply floods the market, prices will fall as buyers have more options.

Today, existing home supply in the U.S. ties for the lowest it has been in more than 20 years. And that means the housing boom has much more upside ahead.

Let me explain...

When it comes to housing, it's always about supply and demand.

After a decade of booming prices, you'd expect supply to be high to meet increased prices. But that's not what's happening now. Existing home supply shows it...

This measure is an easy way to gauge if there are too many or too few homes on the market. And one way to see this is by tracking how long it would take to sell the current homes on the market.

The less time it takes to deplete the inventory, the tighter the supply. And when supply is tight, it's a positive sign for prices going forward.

Right now, it would take just three months to sell all of the existing homes in the U.S. That ties for the lowest on record. Take a look...

There aren't enough houses on the market to keep up with demand. It's really that simple. And as long as that's the case, home prices will continue to rise.

You can also see in the chart that after record-low supply in early 2005, the number of houses on the market started to rise.

Existing inventory was at multiyear lows. And buyers didn't have many options to choose from.

Then, inventory started to rise dramatically. It went from less than four months to nearly 11 months by the height of the housing bust in 2008.

When inventory starts to spike like it did back in 2006 and 2007, it will be a warning sign that lower home prices are on the way. But importantly, that's not happening yet.

We are still seeing record-low inventory that's failing to keep up with demand. That means one thing... Higher home prices are likely from here.

This is a big reason why I've been bullish on housing for years. And it tells me that while this boom is nearly a decade in, we shouldn't expect it to end anytime soon.

Good investing,

Steve

Further Reading

"It might sound crazy... but the COVID-19 crisis has primed the housing market for a major boom," Chris Igou says. This supply story has been in place for months – and it's only gotten more extreme... Read more here: The Next Housing Boom Is Closer Than You Think.

"Uncertainty has a bad reputation in the investing world," Chris writes. When uncertainty arrives in the markets, folks get scared. But history shows us that the volatility in this market leads to major outperformance in the months ahead... Get the full story right here.

Market Notes
CHINA'S E-COMMERCE KING SOARS ON HISTORIC DEMAND

Today, we’re checking in on another company that’s riding the e-commerce trend…

Even before the COVID-19 pandemic, more and more people were turning to online shopping. It’s easier, and often cheaper, to shop at home versus going to the store. Now, the global e-commerce boom has accelerated. And that’s good news for today’s company…

Alibaba (BABA) is an $810 billion Chinese e-commerce giant. More than 870 million people use its online-shopping services on their phones every month. Alibaba takes a percentage of every sale made on its platform… And these fees add up – especially since more than $1 trillion was spent on Alibaba’s digital platforms in the 12 months ending June 30. CEO Daniel Zhang recently said that due to the coronavirus pandemic, the company had seen historic demand for goods on its online marketplace.

As you can see in today’s chart, Alibaba shares have surged in recent months. The stock is up more than 70% from its March low, and it just hit a fresh all-time high. As long as the global e-commerce boom remains strong, this stock should continue higher…