Many folks in the U.S. are focused on a false narrative today…
Business Insider just summed it up perfectly. Here’s the headline from last weekend…
Investors are buying into this misconception, too. Housing stocks have slumped in recent weeks. The SPDR S&P Homebuilders Fund (XHB) dropped as much as 7% in August.
But the real world is breathtakingly adaptable. As my colleague Vic Lederman wrote last Friday, the housing market marches on despite high sticker prices and mortgage rates.
It’s not “stuck” as Business Insider would lead us to believe.
Put simply, a lot of buyers are willing to just grit their teeth and pay up…
The National Association of Realtors’ Housing Affordability Index came in at 87.8 in June. That means typical homebuyers are paying about 14% more than experts think they should.
It’s a steep price to pay. But at least for now, people are doing it.
And the thing is, we’re starting to see hints of a couple trends that might boost housing supply. That could potentially ease prices in the months ahead. So let’s dig into that today…
A few days before the above headline, Business Insider cited a study from real estate firm Redfin (RDFN) in another story. In short, it found that investor purchases are plunging…
By investor purchases, we’re talking about housing sales to hedge funds and other “flippers.” These types of buyers don’t want a forever home. They just want to make money.
Redfin found that investor purchases dropped 48%, year over year, in the first quarter. Then, these purchases suffered another 45% year-over-year decline in the second quarter.
They’re the steepest quarterly drops since the 2008 crisis.
Of course, less demand from investors means more supply for regular homebuyers. So that isn’t a particularly negative development.
If anything, it tells us the market is shifting away from seeing housing as a place to make a quick buck. That’s especially helpful for buyers in the single-family housing market.
The landscape is changing in single-family housing, too.
In short, we’re seeing early signs of progress against zoning rules that limit homes per acre. Oregon, California, and Maine have effectively ended single-family zoning. And Arizona, Rhode Island, and the city of Minneapolis are working on similar legislation as well.
Now, many single-family-housing advocates are fighting back. They defeated New York Governor Kathy Hochul’s effort to increase suburban housing density. But even in that case, legislators are open to approaches that give local jurisdictions more say in how it’s done.
I understand why it’s hard to see such baby steps as breaking the housing stalemate. But it’s no harder than it once was to envision OPEC losing its stranglehold on the energy sector.
As I’ve learned over my decades in this business, the impossible always seems to happen.
In housing, the world needs it to happen. And homebuilders will make money with every nail and plank along the way. That’s true even if they’re building multifamily rental homes.
Good investing,
Marc Gerstein
