The Only Way Out of America's Current Housing Mess

Housing is too hot to ignore today... Living in extreme housing markets... Even 'second tier' markets are heating up... If you think it's a bubble, think again... The U.S. is missing millions of homes... The only way out of America's current housing mess... How we can profit from it...

The red-hot housing market is impossible to ignore at this point...

Unless you've been living under a rock, you've probably already noticed...

Home prices are up 16% over the past year. That's a darn big move.

Some markets in the U.S. are so hot right now that buying a house feels like winning the lottery. Heck, roughly half of the homes listed these days are "under contract" within a week of their listing.

And I (Vic Lederman) am sure you've seen the frenzied reporting in the mainstream media about these "historic" times. Here's a recent example from my home market in North Florida...

Now, as you might know, I moved to North Florida a while back to work alongside Dr. Steve Sjuggerud... I'm an analyst on his True Wealth research team.

But the sleepy island that Steve lives on wasn't a perfect fit for me.

So my wife and I moved to Jacksonville... We bought a place in one of the "hip" neighborhoods. And now, I commute to the island a few times each month.

When my wife and I were buying a little less than three years ago, we were amazed at the prices in Florida. That's because we had moved from California, where everything is expensive... So at the time, everything in Florida seemed cheap by comparison.

However, as we'll detail in today's Digest, things are different with housing across the U.S. these days... Even the prices in previously "second tier" markets like Jacksonville are on fire.

That might make you think we've entered into the next big housing "bubble"... and that prices are destined to crash before long. But as you'll see, that's far from the case.

We'll cover the simple reason for the current red-hot housing market... We'll discuss the only way to stabilize the market... And most important, we'll touch on what it all means from an investing perspective.

Let's start by looking at the differences between California and Florida when I moved...

Put simply, I've experienced a crazy housing market firsthand...

Specifically, my wife and I moved from Mountain View, California.

You might've heard of that area... It's the part of Silicon Valley that is home to tech giants like Facebook (FB), Alphabet (GOOGL), Netflix (NFLX), and Apple (AAPL).

The "typical" home value in Mountain View, according to real estate website Zillow, was roughly $1.9 million when we moved. And we lived just a few blocks away from Palo Alto...

That's one of America's top 10 most expensive zip codes. The typical value for a home in Palo Alto hovers around $3.5 million.

At the time, my wife and I lived in a rental home with a handful of other tech workers. And if I'm being honest, it was a bit of a junker...

It was a one-story, 1,400-square-foot home built in 1951. And it hadn't been updated much since the 1980s.

We leased the house for roughly $3,700 a month... We were thrilled to be paying "under market" rents for such a "nice, big house" at the time.

According to Zillow, that junker of a house is worth $2.3 million today.

By comparison, home prices in Jacksonville seemed too good to be true. But now, they're rising fast, too...

Once-sleepy, seemingly second-tier markets are heating up as well...

Despite the attractive prices at the time, Steve knew that North Florida would be a bit of a hard sell for my wife and me... It's hard to pick up and move all the way across the country.

So he went out of his way to detail his "best quality of life for the lowest cost of living" thesis.

If you've followed Steve's work at all, you're likely familiar with this idea. He has been pitching folks on Florida real estate for years...

Low taxes... nice beaches... low property prices (in North Florida, at least). It really is a perfect setup in many ways.

My wife and I snatched up a home in Jacksonville for roughly $300,000. It's a large 1920s Craftsman-style house... And it has a detached garage that we've converted into a woodshop.

According to Zillow, our home is worth just more than $400,000 today. That's a 33% jump in value in less than three years.

That means home prices are outpacing the benchmark S&P 500 Index's historic return of roughly 7%. We all know that single-family homes aren't supposed to outperform stocks... right?

And it's not just my home... As I mentioned earlier, median home prices are up roughly 16% over the past year alone.

And across the U.S., roughly half of newly listed homes are selling for more than their listing price. There's no getting around it... This is a red-hot seller's market.

But don't let that fool you into thinking we're in a bubble...

This is where many folks get turned around... They see the heat, and the first thing that comes to mind is the word "bubble." Then, they start thinking about what happened in 2008.

"We must be fixing for another housing crash," they might say... I've lost count of the number of times I've heard some variation of that phrase in recent months.

For example, one of my friends wants to move into my neighborhood in Florida. But as prices started soaring earlier this year, he got cold feet. And now, he's sitting on the sidelines... just waiting for prices to cool off.

That's a dangerous game to play.

While I wish him the best, I know the odds are against him. The reason is simple...

Supply and demand are to blame for today's hot housing market...

Sure, interest rates are at historic lows. And there's no question the big-spending government is adding fuel to the fire. But you can't blame the Federal Reserve or Uncle Sam for this one entirely...

At its core, this is a supply and demand problem. Let me show you...

This chart shows the total number of "housing units" developed over time. And it's pretty easy to see that something unprecedented happened after the 2008 housing crisis...

Developers simply walked away from the housing sector. In the depths of the bust – and during the ensuing credit crunch – development just wasn't worth it to them.

But that underbuilding didn't just last for a year... or two... or even three. As you can see, new housing development stayed under the trendline for an entire decade.

Even in macroeconomic terms, that's a long time. And today, we're seeing the real-world effects of this supply shortage.

The economy improved. Heck, we entered into one of America's greatest bull markets after the 2008 crisis... But investments in new housing just didn't keep pace.

The scale of the current housing-supply deficit is massive...

The National Association of Realtors ("NAR") believes the U.S. is short about 2 million single-family homes and about 3.5 million multifamily units.

Looking at the single-family homes alone, that's roughly $700 billion worth based on today's median home prices. And that's just to get us in line with where we "should be" today... It isn't factoring in future demand.

The simple fact is that America has a lot of building to do... And that means companies in this sector have a lot more room to grow.

Folks, I get that housing prices have gone up. The market is darn hot right now. But don't let that fool you... As I said earlier, at its core, this is a supply and demand problem.

Housing developers walked away from the market after the 2008 housing crisis. And now, as a result, the U.S. is short millions of homes and apartments alike.

There's only one way out of this housing mess...

America needs to build more houses.

In fact, the country needs to build millions more just to get back to "normal" levels. Until that happens, we're going to see continued turbulence in the housing market.

Sure, we'll see fluctuations in sentiment and prices. If interest rates go up, for example, housing payments will go up... And that will cool things off a little bit.

Similarly, sellers might get ahead of the market... And high prices will slow things down a little bit.

It's also possible that a wave of post COVID-19 evictions could create some short-term liquidity in the housing market. Banks and landlords will need to unwind delinquent mortgages and leases eventually.

But neither higher prices nor evictions will solve the core problem... America needs more housing to stabilize the market. Let me say it again clearly...

There's only one way out of this housing mess... America needs to build more houses.

As I mentioned earlier, it's going to take about $700 billion of new housing just to get to where we "should be" today. That leads us to an incredibly obvious conclusion...

A select group of companies will profit wildly from the current anomaly in the housing sector...

We're not just talking about homebuilders, either... Toolmakers, service providers, and other businesses that support the homebuilding industry will thrive as well.

We're already seeing big returns as a result of this massive shift in our True Wealth Real Estate model portfolio...

Two of our homebuilders are up 79% and 54%, respectively. A carefully picked company that snapped up homes near the bottom of the housing crisis is up 55% since we recommended it, too.

And those returns are all from the past 15 months!

Heck, the "lowest performer" in our existing True Wealth Real Estate model portfolio is up 19%... And we just recommended buying shares in early July, roughly two months ago.

Big returns like these are possible because of the simple economic facts on the ground... America needs more housing. And these companies are profiting from that idea.

This isn't the kind of setup that resolves itself overnight, either... It's going to take years of building for the U.S. to get back to "normal."

That's exactly why Steve and I have put so much effort into finding the companies perfectly positioned to take advantage of this historic setup. It's also why Steve just recorded a brand-new presentation on the topic...

In fact, the real estate boom is his "No. 1 prediction for the 2020s."

The presentation outlines the incredible opportunity in this market today... And it concludes with a special offer that ensures you'll be able to take advantage of our research and all the related recommendations during the boom. Watch Steve's full presentation right here.

I'm looking forward to you joining us over at True Wealth Real Estate.

New 52-week highs (as of 9/7/21): Apple (AAPL), Asana (ASAN), Facebook (FB), Cloudflare (NET), ResMed (RMD), and Thermo Fisher Scientific (TMO).

In today's mailbag, more thoughts on the latest Friday Digest from our colleague Dan Ferris and feedback about the "wealth gap"... What do you think? As always, e-mail your comments and questions to feedback@stansberryresearch.com.

"Sorry, Dan, I'd rather 'fail to exploit some potentially huge opportunities' than invest in Chinese stocks. I'm not totally ideological – I do have a French stock, TELNF. But buying stock in a Chinese company means sending our capital to China. China wants to take the U.S. over; France isn't so ambitious. I know from reading your stuff that you would agree that money isn't everything, so I'll pass on China even if it means missing out on some profits. That's my one beef with Steve [Sjuggerud], whose advice I otherwise appreciated." – Paid-up subscriber Al C.

"If 70%+ of the economy is consumer-driven, and we know that the wealthy spend only a fraction of their annual income (versus the poor and middle classes, which are compelled to spend almost all of their annual income), wouldn't it make sense to do anything reasonable that we could do in order to increase the income of the poor and middle classes? Not by government handouts, but by changing tax codes, increasing minimum wages, imposing penalties for excess fund-shifting to the wealthy, etc.?

"We spend far too much time figuring ways to 'help' the poor and middle classes, as opposed to creating a social and environmental structure within which they could earn enough to 'help' themselves.

"Secondly, why not a wealth tax on any and all intangible assets such as stocks, assets held in trusts, etc. The middle class pays a wealth tax annually on its most valuable asset (i.e., its personal residence) in the form of annual property taxes. If a wealth tax is OK for the middle classes, why not impose one on the assets of the wealthy as well?

"Thirdly, the idea of increased corporate taxation as a job-killer strikes me as not necessarily a viable idea. Corporations only pay income taxes if they have profits, effectively. And so long as they are making profits, they aren't likely to reduce their labor force, since that would presumably make them unable to earn the same level of profit. So increasing their tax burden would lessen their net profits (i.e., after tax), but wouldn't lessen their gross profits and so wouldn't lead to layoffs. It might reduce their likelihood of expansion, but I'm not sure that's all bad. Maybe it would give smaller companies a chance to grow without being bought out by the larger entities (see The Myth of Capitalism by Jonathan Tepper and Denise Hearn).

"Finally, we could certainly afford, as a country, to spend more on our domestic problems (and hopefully spend more wisely than historically has been the case), if we weren't meddling overseas all the time. We'd also face much less 'blowback' (i.e., terrorism) if we did not meddle all the time. In the context of Afghanistan, read The American War in Afghanistan by Carter Malkasian, and you'll understand why that effort was always doomed. And in a larger context, check out The Sorrows of Empire by Chalmers Johnson.

"The bottom line is that if we citizens do not get the military-industrial-congressional-media complex under control, and do it soon, America as we know and treasure it will, as Porter has amply demonstrated in his books, be gone forever. See George Packer's newest book entitled Last Best Hope.

"Keep up the good work. – Stansberry Alliance member Steve M.

Corey McLaughlin comment: Thanks for the note and the thoughts, Steve... and for the several book recommendations as well. These are enough to keep anyone busy for a while!

Good investing,

Vic Lederman
Jacksonville, Florida
September 8, 2021