(Wen Liqun / Guo Liqun)

Editor | Kangjuan

Driven by factors such as historically low interest rates, a surge in new demand during the COVID-19 epidemic and a shortage of supply caused by supply chain bottlenecks, the US housing market is unusually hot in 2021, even with buyers queuing up to "grab houses". There were only 34000 completed new homes in the US real estate market in July, compared with an average of 87300 in July each year since 1973.

A large number of unmet demand for housing has pushed up house prices in the United States. The US house price index rose a record 18.8 per cent in the 12 months to June, according to a report released by the Federal Housing Finance Agency (FHFA) on August 31st.

Balun Weekly believes thatSome of the factors driving US house prices all the way up still exist, and prices will continue to rise in the future. However, the collapse that some fear is unlikely, because this housing boom is different from the one in the early 2000s. For investors, in the expectation that house prices continue to rise, there are many investment opportunities in the field of real estate stocks.

House prices and rents fly together in the United States

During the 2020 epidemic, blockade measures such as the "Home order" spawned the idea that some people wanted to improve their living environment. A large number of people moved from the city to the suburbs, and some people changed from small houses to large houses because of home work, school suspension of children's schools and other reasons. At the same time, the fed stepped up monetary easing to mitigate the impact on the economy, with mortgage rates at historic lows, with 30-year mortgage rates at 2.88% in the week ended Sept. 2, the lowest level in 50 years, according to data released by Freddie Mac on Sept. 9. All these factors have stimulated demand in the US housing market.

The epidemic has also led to more flexible ways of working, with some companies allowing employees to telecommute at a time of "rework" in the US. Nearly half of respondents said their employers would let them work remotely once the epidemic subsided, according to a recent survey of home buyers by real estate information website Realtor.com. The survey also found that more than half of the respondents said they would prefer to work remotely, and 16 percent said they did not mind spending more time commuting, which was more acceptable to young home buyers, and 22 percent of millennials said they were willing to extend their commuting time if necessary.

Moody's Analytics economist Mark Zandi (Mark Zandi) saidAll this suggests that the epidemic has accelerated the trend of people moving from urban centers where housing costs are expensive to areas where housing costs are more affordable, and this new "wave of immigration" has further expanded the scope of the rise in house prices in the United States.

On Sept. 16, Redfin, a US Internet real estate agent, reported that the median US house price reached $380000 in August, up 16% from the same period in 2020. This is the 13th consecutive month that median house prices in the United States have risen by more than 10%.

At a time when house prices are rising, some potential buyers who cannot afford high prices are forced to turn to the rental market, causing rental prices to rise as well. Rents are rising rapidly across the country, with median rents of all types rising 11.5 per cent from a year earlier to $1607 in August, according to Realtor.com. Of the 50 largest cities in the United States, 28 have seen double-digit rent increases.

Realtor.com chief economist Daniel Hale (Danielle Hale) said that some people find the overheated housing market has become unaffordable, but many of them still have a need to change their living environment, in order to achieve this goal, if they cannot buy a house, they are willing to pay a high price to rent. Rents are likely to rise further in the coming months.

The imbalance between supply and demand makes it difficult to get rid of the "high fever" in the property market.

In the face of hot demand, the supply of housing in the United States lags far behind. Supply chain disruptions caused by the outbreak and labor shortages affecting various industries in the United States have led to lengthened housing construction periods, affecting housing supply. The number of homes for sale in the United States is still well below normal, especially low-cost housing. The number of homes for sale in August 2021 was 867032, down 26.1 per cent from a year earlier, and the number of new homes listed for sale was 691688, down 3.7 per cent from a year earlier, according to Redfin.

In the past few months, the number of new housing starts decreased due to rising construction costs caused by a shortage of building materials, which once led to a further imbalance between supply and demand in the US housing market. Although there are recent signs that new housing starts have rebounded, supply chain bottlenecks and labor shortages have not been significantly alleviated, and how to meet the large demand in the market remains a problem.

On a seasonally adjusted basis, new housing starts rose 3.9% to 1.62 million in August, up from 1.55 million in July, but this was mainly driven by a 20.6% increase in multi-family new housing starts, according to data released by the U.S. Census Bureau on Sept. 21. Single-family housing starts, which are more affordable for home buyers, fell to the lowest level in four months. "it's not because demand is insufficient, but because supply can't keep up," said Peter Boockvar, Bleakley Advisory Group's chief investment officer.

Robert Dietz, chief economist of the National Association of Home Builders (NAHB), also pointed out that the number of single-family homes with building permits but not yet under construction rose to 251000 in August from 242000 in July and 50 per cent higher than the same period last year. "this is a clear sign that supply chain problems persist."

But Dietz also thinksSupply bottlenecks will ease further in the coming months, and the US housing market should return to a more normal state. For example, timber prices, which rose sharply in early 2021, have given up all the increases. NAHB expects sales of new homes to reach 809000 units in 2021, down 2.3% from 2020, but still up 18.4% from 2019. Sales of new homes are expected to continue to grow in 2022 and 2023, up 21% and 22%, respectively.

The "home race" may cool as more new homes enter the market, but the US housing market still needs to increase supply to meet demand, especially low-cost housing. Lawrence Yun, chief economist of the American Association of Realtors (NAR), pointed out in August: "most of the growth in new home sales is still at the high end of the market, while the growth in the middle and lower end of the market is not large, because the number of new homes in these markets is still too small."

Rising house prices have deterred more and more buyers, but strong demand and insufficient supply will still support prices even if home sales slow, says Nancy Vanden Houten, an economist at the Oxford Institute for Economics (Oxford Economics). "the increase in housing inventory is negligible in alleviating severe supply shortages, especially for low-cost housing," she said. "

Us house prices are likely to continue to rise until supply is eased. Freddie Mac's latest quarterly forecast shows that US house prices will grow faster in 2021 than in 2020, and will continue to rise in 2022, but at a slower pace.

Will the US housing market make the same mistake as the crash?

In the face of double-digit gains, the market is bound to ask whether the US housing market is repeating the "pre-crash boom" of the early 2000s.

Some analysts believe that house prices are less likely to fall this time. This time inventory levels are very low, mortgage lending standards are much stricter than last time, and the market as a whole has a stronger base.

Kevin Erdmann, a visiting researcher at George Mason University Mercatus Center in the United States, pointed out that before the economic crisis triggered by the housing crash in 2008, the level of new home inventory in the United States was very high, and now the level is closer to the normal level for decades. A large number of new demand and supply chain disruptions caused by the epidemic are the main reasons why supply is lagging behind, and the market does not have to worry too much about the collapse of the real estate market, as buyers are still snapping up homes.

Moreover, according to Erdmann, there is another reason why the housing market is unlikely to collapse: inventory levels during the previous housing bubble, while very high, were not as speculative as most people thought.

He said that when the US real estate market was very hot in 2005, builders increased their construction because of high sales, and the areas with high sales were those in strong demand in the United States, and as sales grew, builders were actually very conservative in expanding their inventories. The same is true today.

Erdmann pointed outAnalysts often cite the sharp increase in inventories in a few months (that is, the months it takes to sell homes currently for sale in terms of current sales) as evidence of overbuilding during the last housing boom. But time is a key factor. Decades of experience has shown that housing inventory depends largely on sales, not on builders' guesses (or speculation) about what happens next. When sales are strong, inventory turnover is high and inventory tends to remain low. When sales fall rapidly, builders' inventories tend to be higher than they expected.

New home sales peaked from the late 1990s to mid-2005, with inventory at an all-time low of about four months. In order to cope with the growing sales, the builders did increase their inventory at that time, but the inventory level was not enough to meet the demand at that time, so the inventory quantity remained basically the same. Only later, as economic growth began to slow, there was a sharp drop in home sales and a sharp rise in inventories at the same time.

Inventories are also about four months old, and sales are roughly the same as in the late 1990s, Erdmann said. Therefore, although it is easy to conclude that low inventory may lead to a "house grab war", inventory is actually driven by buyers, not the other way around. In other words, when demand from buyers is strong, builders decide to build new homes, and if demand suddenly dries up, builders cannot make their inventories disappear suddenly.

Erdmann believes that buyers' demand for new homes is actually within the control of government policy makers, and that the Federal Reserve and other federal regulators should try to avoid a sharp decline in home sales. The Fed can do this by adjusting interest rates and changing the money supply; federal regulators can keep lending conditions stable. One of the reasons for the crisis in the last housing crash was that Fed officials and other federal regulators left in the face of plummeting home sales, leaving homebuilders and sellers in trouble.

Balun Weekly recently wrote an article pointing out thatAlthough US house prices have risen sharply, they are likely to continue to rise until they reach the level of the last housing bubble.

Nicholas Colas, an analyst at DataTrek, believes that the year-on-year change in house prices does not matter to most homeowners, who usually hold their homes for at least eight years. The data Colas studied is not the median of new home prices, but the eight-year compound annual growth rate of the S & P / Case-Shiller National House Price Index (S&P/Case-Shiller U.S.National Home Price Index).

Measured by these measures, house prices have risen 6.5 per cent a year over the past eight years, higher than the historical average of 3.7 per cent every eight years, but well below the 9.4 per cent rise in 2005 at the peak of the property boom. In fact, judging from the above indicators, the compound annual growth rate of house prices over the past eight years has only reached the level of 2003. "as a result, the risk of a housing bubble bursting is not as high as it was at the beginning of this century," Colas wrote in a research paper. "it alleviates some of our concerns about the recent surge in house prices in the United States."

At present, it is better to buy property stocks than to buy real estate.

The annual real estate market survey conducted by Gallup in April 2021 found that 71 per cent of the 961 respondents thought house prices would continue to rise in 2021, the highest proportion since Gallup began the survey in 2005 and 31 percentage points higher than in 2020.

The rapid rise in house prices and the expectation that prices will continue to rise may be the reason why 41% of respondents believe that real estate is the best long-term investment. This is also the highest proportion of real estate among the five investment options on the questionnaire since Gallup began the survey in 2005. Stocks and mutual funds were the second most popular investment options, with 26% of respondents saying they were the best long-term investments. Eighteen percent of respondents chose gold, while 9 percent chose savings accounts and large certificates of deposit. The least popular long-term investment was bonds, with only 3% of respondents opting for bonds.

However, rising prices are only one indicator of the effectiveness of real estate as a long-term investment.Buying a house may be more cost-effective than renting, and owning a property can also increase the net worth of homeowners. Home equity accounted for 28.9% of American household wealth in 2017, according to the U.S. Census Bureau.

Although the housing market is in short supply and respondents believe that property is a good investment, not many people think that now is a good time to buy a house. 53% think now is a good time to buy a house, up from last year's all-time low of 50%, but the lowest since 2008.

Jeffrey M. Jones, a senior editor at Gallup, said: "Home values are at an all-time high, and with expectations that prices will continue to rise, Americans are not as optimistic as they used to be that now is a good time to buy a house."

Balun Weekly believes thatAt present, it is better to buy shares of real estate builders, which may have more room to rise as house prices continue to rise.

As of Sept. 22, exchange-traded funds SPDR securities Homebuilders (XHB) and iShares securities. Home Construction (ITB) both performed well in 2021, up 32% and 27%, respectively, easily outpacing the 19% rise in the s & p 500.

But investors need to be reminded that the days of easy gains in home construction stocks are over. Michael Darda, chief economist at MKM Partners, observed that while house prices continued to rise, sales by homebuilders were falling. He also pointed out that the rise in Treasury yields could hamper the rise in homebuilder stocks, which are already valued at much higher than historical levels.

"the valuation of the whole sector is already very high," Darda wrote in the research paper. " However, while there may be risks to the long-term prospects of homebuilders, trading such stocks is still feasible.

If investors think homebuilders are expected to lead the rise, they can choose homebuilder stocks such as ITB,D.R.Horton (DHI), Lennar (LEN), NVR (NVR) and PulteGroup (PHM), which account for more than 40 per cent of the fund, while XHB includes some promising non-homebuilder stocks, that is, periphery stocks, including Johnson controls (Johnson Controls, JCI), Carrier Global (CARR) and Alcion (ALLE).