Housing Is - Still - An Unbelievable Opportunity

By Dr. Steve Sjuggerud                        August 2014

Here in Florida, real estate prices have soared from their lows....

As I mentioned, Miami condos fell 60% in price [in the low of the market around 2010], but the high - end condo market has already fully recovered.  That's unbelievable.

It's not just Florida - we've seen 20% - a - year increases in real estate in "hot" markets around the country.

I hope you've taken my advise to invest in housing - and in homebuilders - over the past few years.  If you have, you're sitting on big profits.

After such big gains, the good times in house have to be ending soon, right?  Not necessarily.....

Even after the big gains we've seen, now is still one of the best times in history to buy a house in America.

Sure, it would have been better if you'd followed my advice and bought a few years ago!  But don't sit around waiting for those prices again....

There's a good chance we will never see those prices again in our liftime.  However, we still have a great opportunity today.

Let me show you why....

The Only Thing That REALLY Matters in the Housing Market

When the typical American family decides to buy a house, they look at factors like the house's location, size, view, and number of rooms.  But the only thing that REALLY mattters is the monthly payment.  The BIG questions are "Can I afford it?" and "What will I owe each month?"

The other things are part of the decision, of course.  But the monthly payment is what matters.

Most investors ignore the monthly payment when they size up the housing market.  They will look at home prices relative to incomes, for example.... And then they will say that housing is expensive.
Page: One Reason Why Housing is Still a Value
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However, when you dig deeper than that - when you take the monthly payment into consideration and look at housing affordability instead of just home prices - it makes the monthly payment low.

Because of this (with the exception of the past couple of years) houses in America are more affordable then they've been in generations.  We measured affordability by looking at the median (average) household income in America versus the monthly payment required to pay for the median home in America.

In my office, we use housing affordability to determine the "fair value" for U.S. home prices.  And even after a big move up in prices, our fair-value calculation shows big upside in U.S. housing...

Right now, the median house in America is about $52,000 below our measure of fair value.  The gap has been closing for a couple of years (as prices have gone up, and our fair value has gone down because mortgage rates have gone up), but there are still plenty of gains left.  This housing bull market is NOT over yet!

Right now, the supply of new homes and the number of new homes under construction - "housing starts" - are low.  The supply of new homes has been as low as it is today only 21% of the time throughout history (going back over a half a century).

And housing starts remain incredibly low in the U.S.  Historically, housing starts run around 1 million per year, but today's starts are much lower. [Around 2005, housing starts stood around 1.8 million units.  Today they are at around 600,000 units, three times less!]   The thing is, people keep having babies.  And those families need roofs over their heads.  But those roofs aren't available and aren't being built.  As I said earlier, it's Economics 101: When there's more demand than supply, PRICES SOAR. That's exactly what will happen with home prices.

Good investing,

Steve Sjuggerud

PS- Article taken from the August 2014 issue of Steve Sjuggerud's True Wealth newsletter.
PSS- Dr. Steve Sjuggerud is founder and editor of True Wealth, a financial newsletter that focuses on finding some of the least risky investment ideas around the world.  You can catch him and his partners at
www.dailywealth.com
Commentary            by H. Vandergouw

One can probably attribute the incredibly low "fair value" in housing today due to below "normal" mortgage rates.  Many younger people in today's housing market fail to realize that for nearly 20 to 30 years prior to the 2008 credit collapse, mortgage rates averaged between 7% to 10%! Moreover,  prior to 1985, interest rates during President Carter's and the first term of President Reagan's tenure had interest rates between 12% - 20%.  Even at a reasonable 7% interest rate, a $240,000 mortgage will cost $451 more per month, or 39% more ($1,146/mo. for a 4% mortgage interest rate compared to $1,597/mo. for a 7% mortgage interest rate).  So it's understandable why housing affordability is still prime.
Also, another aspect to keep in mind regarding the comparison between renting and owning a home is that here in Florida, average rents for a standard 3 bedroom/2 bath home range from $1,500 to $2,000 monthly. And the rental market is very good at this time.  Based on a 5% mortgage for a $200,000 3 bed/2 bath home, such a mortgage would only cost $1,074. Of course we should add 14% for insurance and taxes equaling $150.36 for a total cost basis of $1,224.36.  Still, renting a home could cost you over a third more than owing a house.  To find out why owning a home and renting a portion of a "Smart Home" is such a great idea...
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