An Unexpected Encounter at the Local Bar

An unexpected encounter at the local bar... Much bigger than just a good time to refinance... Two factors pushing home prices higher... COVID-19's devastating blow hasn't happened yet... A long way from boom-killing oversupply... The exact opposite story from 1981... Learn Dr. Steve Sjuggerud's real estate secrets...

I (Chris Igou) never expected to refinance my house at the bar...

I don't go to the bar much. I'm not super social... And I'd rather have a few friends over at my house for a relaxing get-together than at a loud, crowded bar.

But when some old friends I hadn't seen in months came to town, I couldn't pass on the opportunity to catch up with them.

The night went mostly as you might expect... just a group of friends enjoying a few drinks, having a few laughs, and catching up on the latest adventures in our lives.

As we were wrapping up, I got in line for the bathroom. That's when I ran into Ben, a longtime family friend who is also a mortgage lender. He actually helped my wife and I buy our first house in northeast Florida back in 2018.

Ben was in line in front of me. And after the initial hellos...

We couldn't help but chat about how cheap it currently was to buy or refinance a home...

Back in February, 30-year mortgage rates were hitting four-year lows... And even to this day, it has rarely been cheaper to take out a loan to buy a home (more on this later).

We started to get into the nuts and bolts about why now was a great time to refinance. And I told him I was ready.

That's when the bathroom door swung open, and our conversation ended. It couldn't have been more than five minutes. So he suggested that we chat more later, gave me his card, and told me to reach out.

OK, so maybe I didn't refinance my house at the bar, but I certainly got the ball rolling there...

You should've seen the look on my wife's face when I got home and told her about seeing Ben and about our conversation. It was clear she didn't believe me... She just said, "Well, you can tell me more about it tomorrow."

I ended up not calling Ben until May to continue the process...

I wish I could say I had a good reason – something like, "I definitely knew rates would go lower due to the coronavirus." But the truth is, I just wasn't ready to fully dive into refinancing my house.

Fortunately, the 30-year mortgage rate dropped even lower from February to May. Being a little lazy rarely pays off, but it did in this case... and I was able to get a better rate.

Now, I'm not just telling you this story because it's a good time to refinance your house. That's true... but today's situation in the housing market is much bigger than that.

Whether you're refinancing, buying, or investing in real estate right now, you need to know that two factors will likely send home prices higher in the coming months. But before we get to those two factors, we need to quickly address the COVID-19 pandemic...

The devastating blow to the housing market from all the lockdowns hasn't materialized...

No one could've predicted the COVID-19 outbreak before it started spreading across the globe in February and March. It devastated families, caused government officials to implement mandatory stay-at-home orders, and crushed the U.S. economy.

The Department of Labor's official unemployment rate in the U.S. hit 14.7% in April. And with so many folks out of jobs, you might've thought a housing crash was imminent.

But so far, that hasn't been the case... The U.S. median home listing price was $320,000 in March, according to Realtor.com. That represented an annual increase of 4.5%.

The growth continued at a greater clip in April... Home prices jumped 5.4% annually that month – the largest rise in two years – according to real estate data firm CoreLogic.

Of course, if we endure a "second wave" of the coronavirus, home prices could take a hit later this year. But that's not the case at all today. Even more, the heart of what drives the housing market is highly skewed to send prices higher...

You see, the supply-demand ratio has gotten completely out of whack...

The first litmus test when looking at the real estate market is to find out if folks are buying.

If they are, and there aren't enough homes for everyone, then home prices often rally higher by default. More folks buy now in fear that they'll need to pay more later if they wait.

Today, folks are still managing to find the needed cash to buy homes. We can tell that if we find out how long houses are sitting on the market...

If homes are sitting longer than normal, then people obviously aren't buying as quickly. That could be a sign that demand has fallen off. But again, we aren't seeing that now...

Homes are selling faster than they were in March.

In April, real estate company RE/MAX put out its national housing report. It looks at roughly 50 metropolitan areas in the U.S. to gauge what's happening in the market at the time.

The survey revealed that homes were selling faster in April than this time last year. Homes lasted just 46 days on the market this April – seven fewer days than in April 2019.

Plus, this drop in days listed on the market set a new low for the report's 12-year history.

This tells us one thing... Demand for buying homes remains strong. That's a positive sign for real estate prices. But demand alone isn't enough to drive prices higher...

It's just one side of the equation. We must also look at supply.

If we see an overflow of homes on the market, it could mean there aren't enough buyers to keep up with the existing supply. And in turn, that could send housing prices falling.

But as it turns out, that's not the case today...

The current housing supply remains near its historical average...

You can see what I mean by looking at the U.S. monthly home supply. It tells us how long it would take to get rid of all the homes in the country at the current sales rates. And obviously... the lower the number of months, the less supply on the market at the time.

Today, that number sits around 6. That's right around the historical average in the U.S. Take a look...

We aren't anywhere near the record supply numbers that we saw after the 2008 real estate bust. And we're nowhere near the excess supply that existed in 1974 and the early 1980s.

This is not the kind of oversupply that kills a housing boom. And with demand remaining strong in March and April, this could create a tailwind for home prices going forward.

Now, housing supply isn't just near long-term averages... It could get even tighter in the months ahead. That's because companies that build homes have stopped doing just that.

In other words, U.S. housing starts have fallen off a cliff since January. Take a look...

Overall, U.S. housing starts are down 45% from their peak in January through April.

Now, a lot of that has to do with lockdowns related to the COVID-19 outbreak. But in the end, it still means there's little chance that the existing home supply will take off in the coming months. And it's another factor that will help send real estate prices even higher.

The last tailwind for real estate is arguably the most important...

As I noted at the start of today's essay, mortgage rates are near their lowest levels in history...

When you buy a home with a mortgage, your interest fee to borrow the money is the mortgage rate.

If mortgage rates are really high, it deters folks from buying a home. And it can make it that much more difficult to get the funding to buy a home.

For example, in 1981, a 30-year fixed mortgage rate was around 17%. Taking out a home loan back then was incredibly expensive... That's more than 4 times higher than the 30-year mortgage rate today (around 3.4%).

Right now, we're seeing the exact opposite story play out... Mortgage rates have rarely been lower. And that means it's extremely cheap to borrow money for a home today.

As more and more people take advantage of these low rates, it will keep demand steady. And it's yet another tailwind for the housing market in the coming months and years.

In short, today is an incredible time to own real estate...

Multiple factors could send home prices higher from here.

So if you've been waiting to refinance your house, stop putting it off like I did.

And if you're in the market for buying a home, it has rarely been cheaper to take out a loan to do so. Last, there's plenty of demand with not enough homes to go around.

Both of these factors could send housing prices higher. And it makes real estate a great opportunity right now.

Speaking of that...

My boss, Dr. Steve Sjuggerud, has put more of his investable net worth into real estate than any other investment. Once you know what to look for, he believes real estate can be even more lucrative than the stock market. And it's much less stressful than investing in stocks, too.

That's why Steve is going public for the first time ever with all of his real estate secrets...

Next Wednesday, June 24, at 8 p.m. Eastern time, Steve will show thousands of folks the process he has personally used to make millions of dollars for himself and his family.

Steve will walk through his own investments, including homes that he and his wife bought and flipped... tax certificates that paid 18%... raw timberland... and much, much more.

And finally, he'll detail a brand-new kind of investment opportunity that has been off-limits to ordinary investors until recently. Save your seat for this FREE broadcast right here.

New 52-week highs (as of 6/15/20): DocuSign (DOCU), Electronic Arts (EA), Equinox Gold (EQX), KraneShares MSCI All China Health Care Index Fund (KURE), Lonza (LZAGY), Sea Limited (SE), and The Trade Desk (TTD).

In today's mailbag, a few more notes on Dan Ferris' Friday's Digest and feedback on COVID-19 cases. As always, send your thoughts, comments, and concerns to feedback@stansberryresearch.com.

"Dan, I agree with you completely, there is no justification for violence against your fellow citizens or people's property. It's sad to think this idea is somehow controversial. I appreciate that you're not afraid to voice your opinion on this, a lot of people stay silent because they are afraid of the mob shouting them down or casting them out. We need more people to speak the truth and stand for what is right and just, even if it's sometimes uncomfortable." – Paid-up subscriber Jeff W.

"It is disturbing to see how removed from reality so many people have become today. Probably a combination of too much 'social media' exposure combined with lots of previously 'good times' exposure contrasted with having their personal freedom hijacked. Let's hope that the rule of the most common denominator kicks in soon! Thanks for your willingness to speak your mind and present a calm, rational viewpoint." – Paid-up subscriber Jim E.

"My son is 22, attending his final semester before heading to law school. He has 4 roommates, one white, one black, one from India, and one from the Middle East, and one of the 4 is gay. They all say the same thing – 'we are watching Marxist thinking take over America and it has been taught in our universities for generations and the under 30 population is all in and they don't even know it.' At the same time, all 5 agree, 'baby boomers have destroyed the planet environmentally, financially, and COVID-19 is Mother Nature accelerating boomer remover deaths for which they have no sorrow.'

"They hate the looting and violence but say this is about way more than a cop killing or race. This is about a social contract being broken, so they have nothing to lose. All 5 believe their future is bleak at best, what's to look forward to? Paying off boomer debts, their student debt, overpopulation, income inequality because of corporate, Wall Street and government worker greed. They believe China will take over, just a matter of time now, as the USA taxes itself to death to pay debt and keep government pensions and jobs rolling.

"As a father, boy it's hard to hear them share this and it breaks my heart. These 5 are our future. 5 young men studying at one of the nation's best universities in Washington DC and they believe there's no future for them. How does a poor black young man feel? Poor white kid? Poor Hispanic kid? After listening to them, I have to admit, it's hard to argue with them. Question is – what are we going to do about it?

"I know what they will do – grind away, one day at a time, try to make a life for themselves and get through it many of them may work for the government because it's an easier path. We owe them a strong capitalism economy that offers the chance for wealth, and they must believe it or we are doomed." – Paid-up subscriber David H.

"You asked us to send our opinions regarding interventions for COVID-19. As a nurse on the front lines, I believe the evidence, which appears to support the use of masks and social distancing. I also believe the current rates of COVID-19 show a sharper rise in states that decided to open more rapidly, with fewer restrictions. Sadly, I live and practice in Texas, and we are one of those states experiencing steady and rapid increase in transmission, which places my patients, coworkers, and family at greater risk.

"There is strong evidence that if we could get 80% of the population to just wear masks and practice social distancing we could nearly eradicate the viral spread. The difference between the U.S. and those countries you mentioned having much better containment and reduction of the virus is that they are following best evidence and taking the proper precautions." – Paid-up subscriber M.C.

"A couple months ago we suspected that the actual COVID-19 case counts (total numbers of people who had contracted the virus) were multiples of the reported counts because many people with the virus had minor symptoms or were asymptomatic and were not included in the reported case counts.

"Now that a lot more testing is being done, it should be expected that more low-intensity cases are being identified. The fact that the current reported cases counts are not double or triple what they were a couple months ago is a very positive sign.

"Nevertheless, I don't understand the focus on case counts. Without statistically meaningful testing we will never be able to know what percentage of those contracting the virus are being counted.

"Daily and weekly case counts without statistical substantiation can be used to support any point of view at the whim of the user. It seems that they're mostly being used to maintain an unjustified fear level among the public." – Paid-up subscriber Paul H.

"Analyzing this chart [from Monday's Digest] from a stochastic point of view, we see at the far right slightly higher lows and slightly higher highs indicating slight uptrend. Prior to that point we were trending lower highs and lower lows.

"However, statistically they are finding more cases because we are doing more testing. A more useful chart would be a seriously accurate and truthful (and hard to find) death rate chart. Especially death rate vs. new cases. Can your researchers create that chart?" – Paid-up subscriber Fred M.

Corey McLaughlin comment: That's a good idea, Fred. We'll look to put something together soon.

Good investing,

Chris Igou
Jacksonville, Florida
June 16, 2020