Assessing the Housing Market in 2021

Apr 04, 2021 | How does the Housing Market impact Retail Traders?

Forever Pandemic

2020 will forever be associated with the pandemic, but it was also historical for another reason. Did you know home sales in 2020 were at their highest levels since 2006? 5.6 million homes were sold in 2020. More impressively, that trend is expected to continue for 2021. The average home price for a home sold in 2020 was $266K,which signaled an 8% rise in home prices from the year prior. Current projections are expecting nearly 6.5 million homes to be sold in 2021. You’d have to go back to 2007 to see sales numbers like that.

2020 Housing Market

What key factors helped drive housing demand to such historic levels in 2020?

1.) Work from Anywhere Economy:

-       The most obvious answer is the global pandemic itself. As companies began to coordinate their shut down activities, many industries realized their staff could be just as productive working from home.

-        71% of the workforce began teleworking in 2020and 54% say they would like to continue this trend indefinitely.

 

2.) The Transition from High-Rent Districts:

-        With all the extra time at home, those who telework have begun to assess their living arrangements. Much of the workforce had to reestablish what they needed to successfully work from home every day.

-        Let’s not forget about those people with children. In 2020, parents needed to set up workstations for themselves and their kids.  

-        This caused people to reassess how much space they really needed. With everyone working from home, commuting into the city became less of an issue.

-        For any person who wanted to live closer to their job, they were now able to work from home or anywhere else they desired for that matter.

-        The USPS reported over 15 million people moved during the pandemic. (28% feared staying in a populated city, 20% moved to be with or closer to their family during the uncertainty & 18% noted financial hardships)

·       This covers anything from job loss to unsustainable rent costs

 

3.) Historically low mortgage rates

-        With 2020 filled with such heightened economic uncertainly, the Federal Reserve pushed interest rates down to historical lows! This was done to help make bank loans more attractive and to help the economy keep going during the downturn.

-        In 2020, the 30-year fixed rate for a loan was 3.24%.In contrast, while still at monumental lows, the number has been elevated to currently sit at 3.6%, just one year later.

Weekly Swing Trades

PNRG (Prime Energy)

October 2, 2022

Entry Price:

80.62

Stop Price:

76.85

Target Price:

88.04

Time Frame:

1 Week Hold

Expecting a short-term bump after a recent OPEC+ announcement regarding the a supply constraint to oil. The constraint would result in ~1M less barrels of oil per day, which should cause a price jump. Low RSI and bouncing off our 250 day moving average, both hallmarks of a good swing trade.

DV (Doubleverify)

October 2, 2022

Entry Price:

27.75

Stop Price:

26.75

Target Price:

29.00

Time Frame:

3 Week Hold

Using our moving averages heavily on this swing trade, look for continued strength as we try to notch out a 6-8% gain. Specifically, we are taking advantage of of a recent cross over in the 50 day moving average. Last week closed down, so wait for confirmation of a reversal.

Current Housing in 2021

As we’ve discussed, home sales were at historic levels for much of 2020. So far we're three-months into 2021 and we’re seeing more of the same.

       VNQ is Vanguard's Real Estate ETF, while ITB is the iShares U.S. Home Construction ETF. Both are great benchmarks to track the overall housing market. As you can see, both have rebounded very strong after the pandemic.
Limited Supply of Homes for Sale

o   One of the key issues affecting home buying in 2021 is the overall lack of supply! There are just not that many homes available for sale. Limited supply can increase demand and increased demand can lead to increased cost.

o   We've already identified why the demand for homebuying is so high, but what about home sellers? In February 2021, there were currently 30% fewer homes for sale than one year prior.

o   Despite the limited supply, the price of home-buying continues to increase! Prices are already up 16% in 2021!

New Construction Builds

o   As city-dwellers attempt to move further away to increase their square footage, home building is also booming.

o   In 2019, there were 887K new homes built.

o   New home builds are expected to top 1millionhomes for the first time since 2007. This could be the beginning of a boom in the home building sector.

o   These projections are expected to keep ticking higher until 2023.

More First Time Buyers

o   Another key factor affecting the real estate market in 2021 is millennials and first-time home buyers. Experts are predicting that nearly 5 million people will turn 30 years old this year. As the number of first-time homebuyers increases,    new wrinkles are added to the housing market.

o   Of first-time homeowners surveyed, 39% expect to be in their home from 2-5 years. While 20% expect to be in their new home for less than 2 years.

o   More buyers mean more competition, and competition can often mean cutting out some of those ‘must-have’ home features.

o   18% of new home buyers surveyed noted they had to compromise on some of their requested features.

o   Speaking of competition, 68% of first-time buyers noted they lost out on the original house they wanted. Further evidence still of an extremely competitive housing market.

Forbearance

o   Foreclosures happen when a homeowner is unable to maintain their mortgage payments. They’re an unnecessary evil in the real estate market and to a sustainable economy.

o   In response to the economic issues caused by the pandemic, a forbearance program was implemented in 2020.

o   This program allowed homeowners who were struggling financially to temporarily halt or decrease their mortgage payments.

o   In 2019, there were nearly 500K homes that went to foreclosure. In 2020, these additional homes were not hitting the market like in years past.

o   The forbearance program has been another headwind for increasing home prices as it has helped contribute to a limited supply.

 

What Will Drive Housing for the Remainder of 2021?

As we've discussed, the supply of available homes is significantly less than just last year. Unfortunately, we don't see that drastically changing this year. 2021 looks to be a continuation of one of the most competitive housing markets in years. Here are some more themes to be mindful of when home shopping in 2021.

1. Vaccinations

o  Zillow recently noted in a survey that 50% of homeowners are comfortable moving during the pandemic, but that number ballooned up to 70% when asked about selling your home once the vaccine has been distributed.

o  Additionally, 25% of homeowners noted they still are uncertain about the future, a figure that has been steadily declining over the last few months.

o   Homeowner sentiment is growing more favorably each month. As the vaccine continues to get distributed more owners are expected to put their homes up for sale as the year goes on. Higher supply should mean prices can tick down slightly.

 

2. Declining Unemployment

o  Rising unemployment numbers have been one of the worst impacts of the lockdown. Many businesses were forced to close their doors indefinitely which caused many people to, unfortunately, lose their jobs.

o  It’s no coincidence that as unemployment has been declining, home sales have been increasing.

o  What it means for housing:

o  Better economic numbers should equate to more housing opportunities. A steady comfortable job allows people the opportunity to make decisions about improving or upgrading their homes.

 

3. Rising Mortgage Rates

o  Mortgage rates are still at very low historical numbers. But if you watch carefully, you’ll notice rates have been slowly ticking up. Heading into April, we’ve had 7 straight weeks of increasing mortgage rates on 30-year fixed loans.

o  As more people come back to work, this increases both supply and demand for homes. We expect this trend will continue.

o  As more people rejoin the workforce, we can expect the number of loans issued by banks to increase. Therefore, rates are going to continue to climb upwards from their historic levels last year.

o  What it means for housing:

o  Rising mortgage rates inherently limit the number of people who can qualify for loans. A smaller demand pool means there should be more homes for sales.

Summary

Housing has become historically competitive as we roll into2021. With a massive amount of first-time homebuyers entering the market, we don't anticipate that changing over the next few months. But we do expect more homes to become available as we get further in 2021.

As the economy continues to push forward and more of the country gets vaccinated, the supply of homes should increase as we move into2022. Current inventory for homes is so low, any influx of additional supply is sure to have a positive outcome for housing.

If you’re looking to buy a home in the next year, as we always say, “Have a plan”.  Understand that the market is going to be incredibly competitive so you will want to get all your finances in order first. You should do everything you can    to make your offer as attractive as possible.

Know that if it’s your first time buying a home, there’s nearly a 70% chance you won’t find your dream home, at least not at first. But better days are ahead. As with the stock market, practice patience, and look for the right time to buy! Though    we are in a historic period for home-buying, it should become easier to buy your first home as we move further away from Covid.

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Weekly Review

Market Performance- Week of 09.25.2022

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SBUX (Starbucks)

SBUX (Starbucks)

Entry Price:

85.00

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Price at High:

89.90

Return for Members:

5.76%

Timeline:

2 Month Hold

Strong momentum over the last few weeks. Watch for a mean reversion, but if moving averages stay consistent look for an early play to open the week.

PNRG (Prime Energy Resources)

PNRG (Prime Energy Resources)

Entry Price:

83.20

September 4, 2022

Price at High:

100.00

Return for Members:

20.19%

Timeline:

3 Week Hold

PNRG had a drawdown to historical levels of support (around the 100 day moving average). Looking to make an entry in the coming days as we also have macro tailwinds with the energy crisis in Europe.

PYPL (Paypal)

PYPL (Paypal)

Entry Price:

87.00

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Price at High:

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4 Week Hold

Playing off the dip in June, we're starting to see momentum as the 50MA is crossing over the long-term averages. Look to for momentum to continue and an early entry on Monday.

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