So, in late July, the news was that sales of newly built homes had fallen -- rather sharply -- from last month and last year and that supply had actually edged up.
That monthly report from the U.S. Census Bureau and Department of Housing and Urban Development generated headlines, including this from CNBC: “Housing Boom Is Over As New Home Sales Fall to Pandemic Low.”
While the decline was pronounced -- 6.6% from May to June and 19.4% from June 2020 -- it feels like this interpretation might be getting, well, a little bit out over their skis.
For their part, for instance, the National Association of Home Builders saw the report as more evidence of the impact of labor and supply shortage, while Realtor.com pointed out that new-home sales had hit a record high in January and have since fallen because of high costs and low supply.
Neither said anything about a boom or bust.
'Boom' or 'bust' are in the eyes of the beholder
That report was Monday. On Tuesday, we learned the S&P CoreLogic Case-Shiller Index recorded a record high annual home price gain of 16.6% in May nationwide. That’s for all home sales, of which newly built homes are a small, but closely followed, segment.
Numerous entities issue regular reports about the U.S. housing market. One of the most prominent, of course, is the huge National Association of Realtors, which just reported that in June the sales of existing homes snapped a four-month decline while posting an all-time high median home price of $363,300.
That’s a resounding 23% higher than last year and marks 112 straight months of year-over-year gains in the median price of a home in the United States. At some point, that will have to come to an end, right?
And when it does, that also will set off alarm bells, especially as new numbers are compared to really high metrics from a year or month before.
Not that you should ignore all that noise. These numbers do mean something. It’s just that “boom” and “bust” can be pretty subjective terms.
Heck, we may just be returning to what might be considered a “normal market.” (Check out this conversation between Millionacres’ Deidre Woollard and Matt Frankel for their insight on the numbers and state of the U.S. housing market.)
To be fair, the CNBC report simply said the boom was over. It didn’t predict a bust that so inevitably follows a bubble. But that’s the natural corollary here. At Millionacres, we’ve looked at whether we’re in such a bubble, like the one that exploded in the financial crisis and Great Recession that began nearly 15 years ago.
The experts we talked to said they didn’t think so, citing factors such as stricter underwriting standards, a growing population of Americans moving into their homebuying years, and more. For more, check out "What Goes Up Must Come Down -- Or Must It?"
Now’s a good time to think about your RE investment strategies (it always is)
All that said, there have been some markers that the market is cooling, which makes this a particularly good time to think about your investments in the real estate market, whether directly in a rental or other investment property, or through such equities as real estate investment trusts (REITs) or homebuilder stocks.
For instance, you might want to consider committing what you can now to these super-low mortgage rates before they start rising again, especially if inflation heats up. And if the latter happens, you might want to already have considered what the impact could be on the different portfolios held by mortgage REITs you might own.
The latter is already occurring for some institutional money. For instance, the merger of Benefit Street Partners and Capstead Mortgage Corporation announced in late July included the news that the new entity will ditch residential mortgages for what it sees as less volatile commercial real estate financing.
The Millionacres bottom line
The bottom line here is, don’t trade on headlines. Do your homework -- and that’s a never-ending assignment.
For more on what some other stakeholders see as good strategies right now, check out this Millionacres piece: “Forewarned and Forearmed: How to Invest Ahead of a Housing Bust.”
Not, of course, that we’re predicting one.